Capital Budgeting8

# Capital Budgeting8 - at Year 1(right after obs erving the c...

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Old Exam Questions - Capital Budgeting Page 46 of 55 Pages at Year 1 (right after observing the cash flow at Year 1) and receive \$450 at Year 1. Using the discounted cash flow (DCF) methodology used in class, determine the net present value of this project when the ability to abandon is included. A. \$272.85 B. \$224.16 C. \$241.91 D. \$210.73 E. \$256.38 YOU ARE GIVEN THE FOLLOWING INFORMATION FOR PROBLEMS 74 - 76: Year Project A Project B 0 -\$5,000.00 -\$5,000.00 1 \$1,000.00 \$4,000.00 2 \$2,000.00 \$4,000.00 3 \$3,000.00 \$2,000.00 4 \$3,000.00 \$2,000.00 5 \$5,000.00 \$1,000.00 74. Given the information above, and assuming a weighted average cost of capital (risk- adjusted discount rate) of 10 percent, determine the net present value (NPV) of the project with the lowest internal rate of return (IRR). A. \$4,694.83 B. \$5,106.94 C. \$4,832.20 D. \$5,244.43 E. \$4,969.57 75. Given the information above, and assuming a weighted average cost of capital (risk- adjusted discount rate) of 10 percent, but a true reinvestment rate of 20 percent, determine the modified internal rate of return (MIRR) for Project B. A. 32.49% B. 36.60% C. 33.86% D. 37.97% E. 35.23% 76. Given the information above, and assuming a weighted average cost of capital (risk- adjusted discount rate) of 10 percent and infinite replication, determine the net present value (NPB) of Project A using the equivalent annual annuity (EAA) approach. A. \$12,560.12

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Old Exam Questions - Capital Budgeting Page 47 of 55 Pages B. \$12,972.23 C. \$12,697.49 D. \$13,109.60 E. \$12,834.86 77. The cash flows associated with a project can be represented by the following decision tree (conditional probabilities are in parentheses): Year 0 Year 1 Year 2 Year 3 \$ 50 (.4) \$200 (.5) \$300 (.6) \$300 (.5) \$250 (.4) \$400 (.5) \$500 (.6) -\$500 \$250 (.4)
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## This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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Capital Budgeting8 - at Year 1(right after obs erving the c...

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