Question

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Consider a capital budgeting example with five projects from
which to select. Let x_{i} = 1 if project i is selected, 0
if not, for i = 1,...,5. Write the appropriate constraint(s) for
each condition. Conditions are independent.

a. | Choose no fewer than four projects. |

b. | If project 2 is chosen, project 3 must be chosen. |

c. | If project 5 is chosen, project 4 must not be chosen. |

d. | Projects cost 130, 220, 150, 75, and 300 respectively. The budget is 475. |

e. | No more than two of projects 3, 4, and 5 can be chosen. |

Answer #1

Consider a capital budgeting problem with seven projects
represented by binary (0 or 1) variables X1,
X2, X3, X4, X5,
X6, X7.
Write a constraint modeling the situation in which only
2 of the projects from 1, 2, 3, and 4 must be
selected.
Write a constraint modeling the situation in which at
least 2 of the project from 1, 3, 4, and 7 must be
selected.
Write a constraint modeling the situation project 3 or
6 must be selected,...

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projects: 0 1 2 3 4 5 Project A -$500 $45 $45 $45 $220 $220 Project
B -$600 $300 $300 $50 $50 $50 Which project would you recommend?
Select the correct answer. I. Neither A or B, since each project's
NPV < 0. II. Both Projects A and B, since both projects have
NPV's > 0. III. Both Projects A and...

Capital budgeting criteria: mutually exclusive projects
A firm with a WACC of 10% is considering the following mutually
exclusive projects:
0
1
2
3
4
5
Project 1
-$400
$65
$65
$65
$210
$210
Project 2
-$400
$300
$300
$55
$55
$55
Which project would you recommend?
Select the correct answer.
I. Both Projects 1 and 2, since both projects have NPV's >
0.
II. Project 2, since the NPV2 >
NPV1.
III. Neither A or B, since each project's...

CAPITAL BUDGETING CRITERIA
A firm with a 14% WACC is evaluating two projects for this
year's capital budget. After-tax cash flows, including
depreciation, are as follows:
0
1
2
3
4
5
Project M
-$18,000
$6,000
$6,000
$6,000
$6,000
$6,000
Project N
-$54,000
$16,800
$16,800
$16,800
$16,800
$16,800
Calculate NPV for each project. Round your answers to the
nearest cent. Do not round your intermediate calculations.
Project M $
Project N $
Calculate IRR for each project. Round your answers to two...

CAPITAL BUDGETING CRITERIA
A firm with a 13% WACC is evaluating two projects for this
year's capital budget. After-tax cash flows, including
depreciation, are as follows:
0
1
2
3
4
5
Project M
-$27,000
$9,000
$9,000
$9,000
$9,000
$9,000
Project N
-$81,000
$25,200
$25,200
$25,200
$25,200
$25,200
Calculate NPV for each project. Round your answers to the
nearest cent. Do not round your intermediate calculations.
Project M $
Project N $
Calculate IRR for each project. Round your answers to two...

Quantitative Problem: Bellinger Industries is
considering two projects for inclusion in its capital budget, and
you have been asked to do the analysis. Both projects' after-tax
cash flows are shown on the time line below. Depreciation, salvage
values, net operating working capital requirements, and tax effects
are all included in these cash flows. Both projects have 4-year
lives, and they have risk characteristics similar to the firm's
average project. Bellinger's WACC is 11%.
0
1
2
3
4
Project A...

The essence of capital budgeting and resource allocation is a
search for good investments in which to place the firm’s capital.
The process can be simple when viewed in purely mechanical terms,
but a number of subtle issues can obscure the best investment
choices. The capital-budgeting analyst, therefore, is necessarily a
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the first place.
Suppose you are a new...

Answer Questions 2 and 3 based on the following LP
problem.
Let P1 = number of Product 1 to be
produced
P2 =
number of Product 2 to be produced
P3 =
number of Product 3 to be produced
Maximize 100P1 + 120P2 +
90P3 Total
profit
Subject to
8P1 + 12P2 + 10P3 ≤
7280 Production budget
constraint
4P1 + 3P2 + 2P3 ≤ 1920 Labor
hours constraint
P1
> 200 Minimum
quantity needed...

Which of the following distinguishes scenario analysis from
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a. Scenario analysis only applies to new product development
projects.
b. Sensitivity analysis only applies to new product development
projects
c. Sensitivity analysis involves changing one project variable
at a time while scenario analysis involves changing more than one
project variable at the same time
d. Sensitivity analysis only applies when projects are mutually
exclusive.
3. Which of the following statements is true regarding the
internal rate of return (IRR)?...

Capital Budgeting
Gilroy’s Casting Company, which has historically specialized in
aluminum casting is considering adding a new bronze casting line to
its production facility. Over the past several years the artistic
community in Park City and along the Wasatch front has
significantly increased and the company has received an increasing
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The casting line would be set up in unused space in Gilroy’s
main plant. The equipment would cost approximately $200,000, plus
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