Risky Investment of $500 The Sure Thing NPV = $300 Good Times Payoff = $1,000 75% 25% Bad Times Payoff = $100 Risky Investment is worse, it has NPV = $208 Risky Investment is better, it has NPV = $363 Risky Investment is better, it has NPV = $545 Risky Investment is worse, it has NPV = $150 Expand Project (Cost = $200) Status Quo Payoff = $0 Payoff = $500 Sell Off Assets Payoff = $200 50% 50% Adjust Business Strategy Payoff = $100 Payoff = $0

Risky Investment of $500 The Sure Thing NPV = $300 Good Times Payoff = $1,000 75% 25% Bad Times Payoff = $100 Risky Investment is worse, it has NPV = $208 Risky Investment is better, it has NPV = $363 Risky Investment is better, it has NPV = $545 Risky Investment is worse, it has NPV = $150 Expand Project (Cost = $200) Status Quo Payoff = $0 Payoff = $500 Sell Off Assets Payoff = $200 50% 50% Adjust Business Strategy Payoff = $100 Payoff = $0

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 19EB: Wallace Company is considering two projects. Their required rate of return is 10%. Which of the two...

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Which of the following is TRUE about NPV? LO3 NPV is the ratio of a project's present value to the amount of resources consumed in generating it. O NPV is the rate at which IRR equals $0. O NPV and IRR are equally reliable investment decision rules when evaluating mutually exclusive projects. O NPV is the difference between the present value of the benefits and the present value of the costs of a project.
Suppose that you could invest in the following projects but have only $24,480 to invest. Which projects would you choose? Project Cost NPV w $ 7,970 $ 3,000 x 10,990 7,530 y 8,500 4,280 z 6,750 3,890 You should invest in project(s)?
Consider the following figure. If firm A were to use the average or composite WACC it would Rate of Return 13.0 (5) 11.0 10.0 90 Project L 70 70 Division L's WACC О Riskov Division H's WACC WACC Project H Composite WACC Firm A Risk Riskov O accept Project L and reject Project H O be making the right decisions on acceptance or rejection of both projects O accept both Project L and Project H O reject both Project L and Project H O accept Project H and reject Project L
The following information on two mutually exclusive projects is given below:n Project A Project B0 -3,000 -5,0001 1,350 1,3502 1,800 1,8003 1,500 5,406IRR 25% 25%Which of the following statements is correct?(a) Since the two projects have the same rate of return, they are indifferent.(b) Project A would be a better choice, as the required investment is smaller withthe same rate of return.(c) Project B would be a better choice as long as the investor’s MARR is lessthan 25%.(d) Project B is a better choice regardless of the investor’s MARR
The blue curve (labeled "L") depicts the NPV for a project with larger cash flows later of -$1,000, $100, $300, $400, and $675. The red curve (labeled "S") depicts the NPV for a project with larger cash flows sooner of -$1,000, $500, $400, $300, and $100. Drag on the graph either left or right to change the cost of capital interest rate at which the NPV is evaluated for the two projects. NPV ($) 500- 400 300 200- 100.40100- 78.82 0 -100- Project S: NPV = CF₁+N CF₁ -=1 (1+r) N CF₂ Project L: NPV = CF₁ + Σ = 1 (1+r) ² + ΣΜ = = -S1, 000 + ² L ¡=-$1,000+ S 15 $500 $400 $300 $100 (1+0.1000)¹ (1+0.1000)² (1+0.1000)³ (1+0.1000)* 20 + Cost of Capital (%) $100 $300 $400 $675 (1+0.1000)¹ (1+0.1000) (1+0.1000)³ (1+0.1000)* + + + + + = $78.82 = $100.40
A Moving to another question will save this response. Question 4 Which type project is one whose acceptance or rejection does not directly eliminate other projects from consideration. O capital budgeting project O mutually exclusive project O contingent project O independent project O None of the listed selections is correct A Moving to another question will save this respeonse MacBook Air esc V11 FI F7 F4 F6 F5 %23 %24 4. & 5 Q R Y U A D. F C V alt option command
Suppose that you could invest in the following projects but have only $29,700 to invest. How would you make your decision and in which projects would you invest? Project Cost A $7,850 B C D 11,060 9,200 6,540 NPV $3,200 6,460 4,150 3,090 You should invest in project(s)
b) Using data provided below, compute appropriate values and fill the table below to help identify the least risky and most risky project among alternatives A, B and C using appropriate criteria. Project EV D D2 Var St. dev Coef.0f Var TT 12 0.2 A 18 0.7 28 0.1 10 0.3 В 22 0.6 32 0.1 11 0.1 C 21 0.8 31 0.1 Where n denotes the profit, P is the probability, EV stand for Expected value, D is the Deviation, D$ denote the deviation square, St. dev is the standard deviation and finally Coef.of Var is the coefficient of variation.
Exercise #3: Decision Trees and Expected Monetary Value (EMV) Question 1: Which project you will choose based on EMV estimation? Why? (Show your calculations) Project Chance Gain or Loss Use for calculations Project A 30% Lose 30,000. 40% Gain 55,000. 30% Lose 15,000. Project B 75% Gain 55,000 25% Lose 150,000. Project C 40% Gain 50,000. 60% Lose 20,000. The best project is:
Suppose x1, x2, and x3 are binary variables that are equal to 1 if the corresponding project (1, 2, or 3) is selected and 0 if the corresponding project is not selected. Also, suppose that y1, y2, and y3 are variables that indicate the amount of money invested in the projects (projects can only be invested in if they are selected). The maximum investment is $2000 for project 1, $4000 for project 2, and $6000 for project 3. Which of the following constraints is needed for this problem? x3 ≤ 6000y3 6000x3 ≤ y3 6000y3 ≤ x3 y3 ≤ 6000x3
You are considering Project A, with the following information (Assume all statistics given are correct): Economy Probability of Rates of Return ____ Condition State Occurring Project A Market T-Bill Bad 0.2 3.0% 0.0% 4.82% Average 0.4 10.0% 8.0% 4.82% Good 0.4 15.0% 12.0% 4.82% Expected return 10.6% 8.0% 4.82% Standard deviation 5.72% 4.38% 0% Correlation Coefficient between…
quiz is acceptung Question 1 (10 points) The Internal Rate of Return is a financial measure that allows us to estimate: a The nominal value of the returns on a project. b The profitability of a potential investment in a project. The variance of returns on a project. The median of the returns on a project. Next Page Once you click Next Page you will not be able to change you answer Support | Schoology Blog I PRIVACY POI JUN 30 MacBook Air