Question

Two mutually exclusive projects have 3-year lives and a required rate of return of 10.5 percent. Project A costs $75,000 and has cash flows of $18,500, $42,900, and $28,600 for Years 1 to 3, respectively. Project B costs $72,000 and has cash flows of $22,000, $38,000, and $26,500 for Years 1 to 3, respectively. Using the IRR, which project, or projects, if either, should be accepted?

• reject both projects

• accept both projects

• accept Project A and reject Project B.

• accept Project B and reject Project A.

• select either project as there is no significant difference between them

2-

The payback method:

• is the most frequently used method of capital budgeting analysis.

• is a more sophisticated method of analysis than the profitability index.

• generally results in decisions that conflict with the decision suggested by NPV analysis.  

• considers the time value of money.

• applies mainly to projects where the actual results will be known relatively soon.

3-

The pretax salvage value of an asset is equal to the:

• book value if MACRS depreciation is used.

• market value minus the book value.

• book value minus the market value.

• book value if straight-line depreciation is used.

• market value.

4-

A project has an initial cost of $10,600 and produces cash inflows of $3,700, $4,900, and $2,500 for Years 1 to 3, respectively. What is the discounted payback period if the required rate of return is 7.5 percent?

• 2.78 years

• 2.65 years

• never

• 2.94 years

• 2.88 years

# answer all 4 parts please

Answer 1