Chapter 11: The Basics of Capital Budgeting
b.
c.
e.
EASY
11-3 Internal Rate of Return (IRR)
79. Warr Company is considering a project that has the following cash flow data. What is the project’s IRR? Note that a
project’s projected IRR can be less than the WACC or negative, in both cases it will be rejected.
Year
1
2
3
4
Cash flows
$400
$400
$400
$400
a.
0.85%
b.
0.78%
c.
0.88%
d.
0.76%
e.
0.91%
c
b.
c.
d.
e.
EASY
11-3 Internal Rate of Return (IRR)
Chapter 11: The Basics of Capital Budgeting
80. Thorley Inc. is considering a project that has the following cash flow data. What is the project’s IRR? Note that a
project’s projected IRR can be less than the WACC or negative, in both cases it will be rejected.
Year
0
1
2
3
4
5
Cash flows
-$1,100
$325
$325
$325
$325
$325
a.
14.59%
b.
15.18%
c.
11.24%
d.
16.20%
e.
13.43%
a
b.
c.
d.
e.
EASY
11-3 Internal Rate of Return (IRR)
Multiple Choice
FOFM.BRIG.17.11.03 – Internal Rate of Return (IRR)
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
Bloom’s: Analysis
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
81. Taggart Inc. is considering a project that has the following cash flow data. What is the project’s payback?
Year
0
1
2
3
Cash flows
-$1,125
$500
$500
$500
a.
2.25 years
b.
2.41 years
c.
2.07 years
Bloom’s: Analysis
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
Chapter 11: The Basics of Capital Budgeting
d.
1.87 years
e.
2.50 years
b.
c.
d.
e.
11-8 Payback Period
Multiple Choice
FOFM.BRIG.17.11.08 – Payback Period
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
Bloom’s: Analysis
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
82. Resnick Inc. is considering a project that has the following cash flow data. What is the project’s payback?
Year
0
1
2
3
Cash flows
–$475
$200
$200
$200
a.
2.61 years
b.
1.97 years
c.
2.42 years
d.
2.26 years
e.
2.38 years
CF/CF * in payback year.
Chapter 11: The Basics of Capital Budgeting
b.
c.
d.
e.
11-8 Payback Period
Multiple Choice
FOFM.BRIG.17.11.08 – Payback Period
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
Bloom’s: Analysis
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
83. Susmel Inc. is considering a project that has the following cash flow data. What is the project’s payback?
Year
0
1
2
3
Cash flows
–$475
$150
$200
$300
a.
2.42 years
b.
1.96 years
c.
2.88 years
d.
2.47 years
e.
2.85 years
b.
c.
d.
e.
11-8 Payback Period
Multiple Choice
FOFM.BRIG.17.11.08 – Payback Period
Chapter 11: The Basics of Capital Budgeting
84. Mansi Inc. is considering a project that has the following cash flow data. What is the project’s payback?
Year
0
1
2
3
Cash flows
–$500
$300
$325
$350
a.
1.28 years
b.
1.58 years
c.
1.83 years
d.
1.62 years
e.
1.49 years
b.
c.
d.
e.
11-8 Payback Period
Multiple Choice
FOFM.BRIG.17.11.08 – Payback Period
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
Bloom’s: Analysis
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
85. Cornell Enterprises is considering a project that has the following cash flow and WACC data. What is the project’s
NPV? Note that a project’s projected NPV can be negative, in which case it will be rejected.
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
Bloom’s: Analysis
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
Chapter 11: The Basics of Capital Budgeting
WACC:
10.00%
Year
0
1
2
3
Cash flows
-$1,275
$450
$460
$470
a.
-$106.10
b.
-$132.63
c.
-$139.26
d.
-$125.99
e.
-$165.78
b.
c.
d.
e.
EASY/MODERATE
11-2 Net Present Value (NPV)
Multiple Choice
FOFM.BRIG.17.11.02 – Net Present Value (NPV)
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
NPV
Bloom’s: Analysis
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
86. Warnock Inc. is considering a project that has the following cash flow and WACC data. What is the project’s NPV?
Note that a project’s projected NPV can be negative, in which case it will be rejected.
WACC:
10.00%
Year
0
1
2
3
Cash flows
-$1,050
$500
$400
$300
a.
-$47.38
b.
-$39.09
c.
-$29.61
d.
-$40.27
e.
-$39.48
e
Chapter 11: The Basics of Capital Budgeting
b.
c.
d.
e.
EASY/MODERATE
11-2 Net Present Value (NPV)
Multiple Choice
FOFM.BRIG.17.11.02 – Net Present Value (NPV)
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
NPV
Bloom’s: Analysis
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
87. Jazz World Inc. is considering a project that has the following cash flow and WACC data. What is the project’s NPV?
Note that a project’s projected NPV can be negative, in which case it will be rejected.
WACC:
9.75%
Year
0
1
2
3
4
Cash flows
-$1,200
$400
$425
$450
$475
a.
0$222.13
b.
0$185.11
c.
0$157.34
d.
0$174.00
e.
0$198.07
b.
c.
d.
e.
EASY/MODERATE
11-2 Net Present Value (NPV)
Multiple Choice
FOFM.BRIG.17.11.02 – Net Present Value (NPV)
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
NPV
Bloom’s: Analysis
Chapter 11: The Basics of Capital Budgeting
88. Barry Company is considering a project that has the following cash flow and WACC data. What is the project’s NPV?
Note that a project’s projected NPV can be negative, in which case it will be rejected.
WACC:
11.75%
Year
0
1
2
3
4
5
Cash flows
-$1,100
$400
$390
$380
$370
$360
a.
0$286.36
b.
0$294.95
c.
0$349.36
d.
0$309.27
e.
0$355.08
a
b.
c.
d.
e.
EASY/MODERATE
11-2 Net Present Value (NPV)
Multiple Choice
FOFM.BRIG.17.11.02 – Net Present Value (NPV)
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
NPV
Bloom’s: Analysis
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
89. Datta Computer Systems is considering a project that has the following cash flow data. What is the project’s IRR?
Note that a project’s projected IRR can be less than the WACC (and even negative), in which case it will be rejected.
Year
0
1
2
3
Cash flows
-$1,050
$450
$470
$490
a.
12.69%
b.
13.98%
c.
15.58%
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
Chapter 11: The Basics of Capital Budgeting
d.
18.15%
e.
16.07%
e
b.
c.
d.
e.
EASY/MODERATE
11-3 Internal Rate of Return (IRR)
Multiple Choice
FOFM.BRIG.17.11.03 – Internal Rate of Return (IRR)
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
Bloom’s: Analysis
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
90. Simkins Renovations Inc. is considering a project that has the following cash flow data. What is the project’s IRR?
Note that a project’s projected IRR can be less than the WACC (and even negative), in which case it will be rejected.
Year
0
1
2
3
4
Cash flows
–$625
$300
$290
$280
$270
a.
29.04%
b.
32.63%
c.
24.55%
d.
30.83%
e.
29.94%
e
b.
c.
e.
EASY/MODERATE
Chapter 11: The Basics of Capital Budgeting
91. Maxwell Feed & Seed is considering a project that has the following cash flow data. What is the project’s IRR? Note
that a project’s projected IRR can be less than the WACC (and even negative), in which case it will be rejected.
Year
0
1
2
3
4
5
Cash flows
-$6,750
$2,000
$2,025
$2,050
$2,075
$2,100
a.
15.45%
b.
17.17%
c.
13.74%
d.
15.61%
e.
12.96%
b.
c.
d.
e.
EASY/MODERATE
11-3 Internal Rate of Return (IRR)
Multiple Choice
FOFM.BRIG.17.11.03 – Internal Rate of Return (IRR)
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
Bloom’s: Analysis
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
92. Last month, Lloyd’s Systems analyzed the project whose cash flows are shown below. However, before the decision to
11-3 Internal Rate of Return (IRR)
Multiple Choice
FOFM.BRIG.17.11.03 – Internal Rate of Return (IRR)
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
Bloom’s: Analysis
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
Chapter 11: The Basics of Capital Budgeting
accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm’s WACC.
The Fed’s action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project’s
forecasted NPV? Note that a project’s projected NPV can be negative, in which case it should be rejected.
Old WACC:
10.00%
New WACC:
9.50%
Year
0
1
2
3
Cash flows
-$1,000
$410
$410
$410
a.
0$9.04
b.
0$11.12
c.
0$10.22
d.
0$10.85
e.
0$10.13
a
b.
c.
d.
e.
MODERATE
11-2 Net Present Value (NPV)
Multiple Choice
FOFM.BRIG.17.11.02 – Net Present Value (NPV)
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
NPV sensitivity to WACC
Bloom’s: Evaluation
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
93. Lasik Vision Inc. recently analyzed the project whose cash flows are shown below. However, before Lasik decided to
accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm’s WACC.
The Fed’s action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project’s
forecasted NPV? Note that a project’s projected NPV can be negative, in which case it should be rejected.
Old WACC:
8.00%
New WACC:
9.75%
Year
0
1
2
3
Cash flows
-$1,000
$410
$410
$410
a.
-$30.55
b.
-$34.12
c.
-$32.50
Chapter 11: The Basics of Capital Budgeting
d.
-$28.60
e.
-$29.25
c
b.
c.
d.
e.
MODERATE
11-2 Net Present Value (NPV)
Multiple Choice
FOFM.BRIG.17.11.02 – Net Present Value (NPV)
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
NPV sensitivity to WACC
Bloom’s: Evaluation
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
94. Ehrmann Data Systems is considering a project that has the following cash flow and WACC data. What is the project’s
MIRR? Note that a project’s projected MIRR can be less than the WACC (and even negative), in which case it will be
rejected.
WACC:
9.00%
Year
0
1
2
3
Cash flows
-$1,000
$450
$450
$450
a.
13.84%
b.
14.53%
c.
17.29%
d.
13.28%
e.
13.70%
a
Chapter 11: The Basics of Capital Budgeting
b.
c.
d.
e.
MODERATE
11-6 Modified Internal Rate of Return (MIRR)
Multiple Choice
FOFM.BRIG.17.11.06 – Modified Internal Rate of Return (MIRR)
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
MIRR
Bloom’s: Analysis
Multiple Choice: Problem
6/23/2015 3:26 PM
6/23/2015 3:26 PM
95. Ingram Electric Products is considering a project that has the following cash flow and WACC data. What is the
project’s MIRR? Note that a project’s projected MIRR can be less than the WACC (and even negative), in which case it
will be rejected.
WACC:
7.00%
Year
0
1
2
3
Cash flows
–$800
$350
$350
$350
a.
14.93%
b.
10.00%
c.
12.04%
d.
13.97%
e.
9.15%
c
Chapter 11: The Basics of Capital Budgeting
96. Malholtra Inc. is considering a project that has the following cash flow and WACC data. What is the project’s MIRR?
Note that a project’s projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC:
10.00%
Year
0
1
2
3
4
Cash flows
–$975
$300
$320
$340
$360
a.
14.45%
b.
12.92%
c.
12.57%
d.
11.28%
e.
11.75%
e
MODERATE
11-6 Modified Internal Rate of Return (MIRR)
Multiple Choice
MIRR
Bloom’s: Analysis
Multiple Choice: Problem
6/23/2015 3:26 PM