Question

**True or false. If your answer is false, you must justify
your answer with a one sentence explanation to receive any
credit.**

- An asset depreciated in the 3-years MACRS class will have book value of 0 at the end of 3 years.

- The discounted payback period will always be no shorter than the undiscounted payback period.

- If the internal rate of return on an investment is positive, then the investment’s net present value must be positive.

- You are purchasing a machine at $1 million today for a three-year project. At the end of Year 3, you will sell the asset at $800,000. The salvage value will for sure be higher than the market value (of $800,000).

12. If we are comparing two investments, the investment with the higher IRR will have the higher NPV.

Answer #1

An asset depreciated in the 3-years MACRS class will have book value of 0 at the end of 3 years.

False: - (The value will be zero at the end of year 4)

The discounted payback period will always be no shorter than the undiscounted payback period.

True

If the internal rate of return on an investment is positive, then the investment’s net present value must be positive.

False: ( If IRR >= cost of capital only then NPV will be positive)

You are purchasing a machine at $1 million today for a three-year project. At the end of Year 3, you will sell the asset at $800,000. The salvage value will for sure be higher than the market value (of $800,000).

False ( it can be low as it is estimated on the first year)

12. If we are comparing two investments, the investment with the higher IRR will have the higher NPV.

False ( It is not compulosry in every case )

You are considering a project with conventional cash flows and
the following characteristics:
Discounted Payback
2.95 Years
NPV
$510,000
IRR
12%
Which of the following statements is correct given this
information?
I.
The discount rate used in computing the net present value was
greater than 12%.
II.
The payback period must be greater than 2.95 years.
III.
This project should be accepted as the NPV is positive.

1(a). (TRUE or FALSE?) We calculate the payback period for a
proposed project by adding a project’s positive cash flows, one
period at a time, until the sum equals the initial investment.
1(b). (TRUE or FALSE?) When evaluating proposed projects with
the IRR method, those projects with IRRs that are greater than the
required rate of return are rejected.
1(c). (TRUE or FALSE?) If the project’s IRR is greater than or
equal to the hurdle rate (discount rate), the project...

True or False?
1. Payback period fails to account for different levels of risk.
2. Based on the IRR decision rule, you reject a project if the
IRR is less than 0.
3. The net present value tells you how much the value of a firm
is expected to change by accepting and implementing the
project.
4. The training required in order to operate new equipment is
included in the capital budgeting calculation.

Project A has a net present value of $1,500, a payback period of
2 years, and an internal rate of return of 12%. Project
B has a net present value of $1,800, a payback period of 4 years,
and an internal rate of return of 10%. Project C has a
netpresent value of $1,750, a payback period of 3 years, and an
internal rate of return of 11%. If the projects are
mutually exclusive, which project should be undertaken?
A.
Project A because...

Please Answer Both! Thank you
23. A significant flaw in the payback method of capital
budgeting is that____________
Question 23 options:
it is calculated using arithmetic average instead of weighted
moving average.
it assumes future cash flows are reinvested at the IRR.
it ignores cash flows following the payback period.
it only calculates present values prior to comparing them to
investment amount.
24. A project will cost $20,000 in total investment. The cash
flows are as follows: Year 1: $5,000?...

11. The NPV and payback period
What information does the payback period provide?
A project’s payback period (PB) indicates the number of years
required for a project to recover its initial investment using its
operating cash flows. As the theoretical soundness of the
conventional (undiscounted) PB technique was criticized, the model
was modified to incorporate the time value of money-adjusted
operating cash flows to create the discounted payback method. While
both payback models continue to reflect faulty ranking criteria,
they...

6. You are planning to invest $2,500 today for three years at
a nominal interest rate of 9 percent with annual compounding.
a. What would be the future value of your investment?
b. Now assume that inflation is expected to be 3 percent per
year over the same three-year period. What would be the
investment’s future value in terms of purchasing power?
c. What would be the investment’s future value in terms of
purchasing power if inflation occurs at a...

You are considering making a movie. The movie is expected to
cost $10.8 million upfront and take a year to make. After that, it
is expected to make $4.5 million in the first year it is released
(end of year 2) and $1.8 million for the following four years (end
of years 3 through 6) . What is the payback period of this
investment? If you require a payback period of two years, will you
make the movie? Does the...

You are considering a project with an initial cash outlay of
$100,000 and expected free cash flows of $23,000 at the end of each
year for 6 years. The required rate of return for this project is
10 percent.
a. What is the project’s payback period?
b. What is the project’s discounted payback period?
c. What is the project’s NPV ?
d. What is the project’s PI ?
e. What is the project’s IRR ?
f. What is the project’s...

] Burton, a manufacturer of snowboards, is considering replacing
an existing piece of equipment with a more sophisticated machine.
The following information is given. • The proposed machine will
cost $120,000 and have installation costs of $20,000. It will be
depreciated using a 3 year MACRS recovery schedule. It can be sold
for $60,000 after three years of use (before tax; at the end of
year 3). • The existing machine was purchased two years ago for
$95,000 (including installation)....

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