a.
If you apply the payback criterion, which investment will you choose?
Why?
b.
If you apply the discounted payback criterion, which investment will you choose?
Why?
c.
If you apply the NPV criterion, which investment will you choose?
Why?
d.
If you apply the IRR criterion, which investment will you choose?
Why?

e.
If you apply the profitability index criterion, which investment will you choose?
Why?
f.
Based on your answers in (a) through (e), which project will you finally choose?
Why?
#4:
Slow Ride Corp. is evaluating a project with the following cash flows:
The company uses a 10 percent interest rate on all of its projects.
Calculate the MIRR of
the project using the combination approach.
#5:
The Yurdone Corporation wants to set up a private cemetery business.
According to the
CFO, Barry M. Deep, business is “looking up.”
As a result, the cemetery project will
provide a net cash inflow of $85,000 for the firm during the first year, and the cash flows
are projected to grow at a rate of 6 percent per year forever.
The project requires an
initial investment of $1,400,000.
a.
If Yurdone requires a 13% return on such undertakings, should the cemetery business
be started?
b.
The company is somewhat unsure about the assumption of a 6% growth rate in its
cash flows.
At what constant growth rate would the company just break even if it still
required a 13% return on investment?
#6:
What is the NPV of a publicly listed common stock? Of a bond? Given your answers,
would you purchase a common stock and/or a bond?
Year
Cash Flow
0
-$16,000
1
6,100
2
7,800
3
8,400
4
6,500
5
-5,100

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