# Lecture problems u2013 capital budgeting criteria -...

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Lecture problems – capital budgeting criteriaI Scream Ice Cream is considering a project that is expected to cost \$500,000 today; produce cash flows of \$170,000 in 1 year, \$200,000 in 2 years, \$250,000 in 3 years, and \$100,000 in 4 years; and have a cost of capital of 9 percent. Would the firm accept the project based on NPV?
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Lecture problems – capital budgeting criteriaWhat is the NPV of the project that would cost \$80,000 today and be expected to produce annual cash flows of \$7,300 forever with the first annual cash flow expected in 1 year, if the cost of capital of the project is 9.36 percent?
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Lecture problems – capital budgeting criteriaI Scream Ice Cream is considering a project that is expected to cost \$500,000 today; produce cash flows of \$520,000 in 1 year, \$0 in 2 years, \$0 in 3 years, and X in 4 years; have a cost ofcapital of 10 percent; and have an NPV of \$20,000. What is X?
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Lecture problems – capital budgeting criteriaI Scream Ice Cream is considering a project that is expected to cost \$5,000 today; produce a cash flow of \$5,500 in 1 year, and have an NPV of -\$200. What is the cost of capital for the project?
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Lecture problems – capital budgeting criteriaSuppose we define a “good” project as creating value; a “bad” project as destroying value; the “right” decision as accepting a “good” project or rejecting a “bad” project; and the “wrong” decision as rejecting a “good” project or accepting a “bad” project, then is the following assertion true or false?Using net present value and the NPV rule always leads to the “right” decision for both “good” and “bad” projects when projects have conventional cash flows.
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Lecture problems – capital budgeting criteriaSuppose we define a “good” project as creating value; a “bad” project as destroying value;