104.
A firm evaluates all of its projects by using the NPV decision rule. At a
required return of 14 percent, the NPV for the following project is _____ and
the firm should _____ the project.
105.
A project that provides annual cash flows of $12,600 for 12 years costs
$65,000 today. At what rate would you be indifferent between accepting the
project and rejecting it?
106.
Hungry Hoagie’s has identified the following two mutually exclusive
projects:
At what rate would you be indifferent between these two projects?
107.
Consider the following two mutually exclusive projects:
What is the crossover rate for these two projects?
108.
The relevant discount rate for the following set of cash flows is 14 percent.
What is the profitability index?
109.
Consider the following two mutually exclusive projects:
The required return is 15 percent for both projects. Which one of the
following statements related to these projects is correct?
110.
An investment project has an installed cost of $518,297. The cash flows
over the 4-year life of the investment are projected to be $287,636,
$203,496, $103,802, and $92,556, respectively. What is the NPV of this
project if the discount rate is zero percent?
111.
The Taxi Co. is evaluating a project with the following cash flows:
The company uses an 8 percent interest rate on all of its projects. What is
the MIRR using the discounted approach?
112.
The Chandler Group 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 $57,000 for the firm
during the first year, and the cash flows are projected to grow at a rate of 7
percent per year forever. The project requires an initial investment of
$759,000. The firm requires a 14 percent return on such undertakings. The
company is somewhat unsure about the assumption of a 7 percent growth
rate in its cash flows. At what constant rate of growth would the company
just break even?
Essay Questions
113.
The profitability index (PI) of a project is 1.0. What do you know about the
project’s net present value (NPV) and its internal rate of return (IRR)?
114.
Explain how the internal rate of return (IRR) decision rule is applied to
projects with financing type cash flows.
115.
Explain the differences and similarities between net present value (NPV)
and the profitability index.
116.
How does the net present value (NPV) decision rule relate to the primary
goal of financial management, which is creating wealth for shareholders?