Question

Section 9

Jimbo's Jumbo Shrimp Store is thinking about investing in a new shrimp peeling machine. The cost of the machine is $50,000. The net cost of the machine (accounting for the sale of the old machine) is $37,600. Which of these two numbers should Jimbo use in his capital budgeting analysis as the 'investment amount' in 'time period zero' when computing IRR or NPV?  

Group of answer choices

Neither, he needs to add the salvage value of the old machine to the cost of the new one.

$50,000

$37,600

Either is acceptable from a cash flow perspective.

In comparing the IRR and NPV methods of capital budgeting analysis, which of the following statements is generally accepted as true?

Group of answer choices

They are considered the same; neither is viewed as a superior methodology.

IRR is considered superior because it is sometimes possible to calculate 2 different correct IRRs for the same problem.

NPV is considered the superior method because it is more conservative in its assumptions and is more accurate than IRR.

IRR is considered superior because of its aggressive assumption that future cash flows can be reinvested at the IRR.

Answer 1

Answer is given below with explanations