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Unformatted text preview: d $40,000 in Year 10. This investment will cost the firm $150,000 today, and the firm’s cost of capital is 10 percent. What is the NPV for this investment? ($ 51,138) Question 4
Question 4 As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows:
Year
0
1
2
3
4 Project X
$100,000
50,000
40,000
30,000
10,000 Project Z
$100,000
10,000
30,000
40,000
60,000 If Denver’s cost of capital is 15 percent, which project would you choose? (Neither project) Question 5
Question 5 Two projects being considered are mutually exclusive and have the following projected cash flows:
Year
0
1
2
3
4 Project A
$50,000
15,625
15,625
15,625
15,625 Project B
$50,000
0
0
0
99,500 If the required rate of return on these projects is 10 percent, which would be chosen and why? (Project B because it has the higher NPV) Question 6
Question 6 Braun Industries is considering an investment project that has the following cash flows: Year
0
1
2
3
4 Cash Flow
$1,000
400
300
500
400 The company’s WACC is 10 percent. What is the project’s payback, internal rate of return (IRR), and net present value (NPV)? (Payback = 2.6, IRR = 21.22%, NPV = $260) Question 7
Question 7 Oak Furnishings is considering a project that has an upfront cost and a series of positive cash flows. The project’s estimated cash flows are summarized Year
below: Cash?Flow
0
1
2
3
4 $500 million
300 million
500 million
400 million The project has a regular payback of 2.25 years. What is the project’s internal rate of return (IRR)? (30.31%) Question 8
Question 8 A project has the following net cash flows:
Year
0
1
2
3
4
5 Cash Flow
$X
150
200
250
400
100 At the project’s WACC of 10 percent, the project has an NPV of $124.78. What is the project’s internal rate of return? (16.38%)...
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This document was uploaded on 01/14/2014.
 Winter '14

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