Question

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 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 B, since both projects have IRR's > 0. IV. Project B, since the NPVB > NPVA. V. Project A, since the NPVA > NPVB.

Answer #1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

A:

Present value of inflows=45/1.1+45/1.1^2+45/1.1^3+220/1.1^4+220/1.1^5

=$398.77

NPV=Present value of inflows-Present value of outflows

=$398.77-$500

=($101.23)(Approx)(Negative)

B:

Present value of inflows=300/1.1+300/1.1^2+50/1.1^3+50/1.1^4+50/1.1^5

=$623.42

NPV=Present value of inflows-Present value of outflows

=$623.42-$600

=$23.42(Approx)

Hence since project B has positive NPV ;B must be selected while A rejected.

Hence **the correct option is IV.**

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: 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
-$500
$45
$45
$45
$160
$160
Project 2
-$450
$300
$300
$60
$60
$60
Which project would you recommend?
Select the correct answer.
a. Both Projects 1 and 2, since both projects have NPV's >
0.
b. Project 1, since the NPV1 >
NPV2.
c. Both Projects 1 and 2, since both...

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
-$250
$75
$75
$75
$170
$170
Project 2
-$700
$200
$200
$50
$50
$50
Which project would you recommend?
Select the correct answer.
a. Neither Project 1 nor 2, since
each project's NPV < 0.
b. Both Projects 1 and 2, since
both projects have NPV's > 0.
c. Project 1, since...

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 -$250 $50 $50 $50 $175 $175 Project
2 -$700 $350 $350 $80 $80 $80 Which project would you recommend?
Select the correct answer.
a. Project 2, since the NPV2 > NPV1.
b. Project 1, since the NPV1 > NPV2.
c. Both Projects 1 and 2, since both projects have NPV's >
0....

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
-$350
$40
$40
$40
$215
$215
Project 2
-$650
$200
$200
$70
$70
$70
Which project would you recommend?
Select the correct answer.
a. Project 1, since the
NPV1 > NPV2.
b. Both Projects 1 and 2, since
both projects have IRR's > 0.
c. Project 2, since the
NPV2 > NPV1....

(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
-$500
$60
$60
$60
$235
$235
Project 2
-$600
$250
$250
$125
$125
$125
(this graph should have the 0 over the -500 and -600, the 1 over
the 60 and 250, the 2 over the 60 and 250. the 3 over the 60 and
125, the 4 over the 235 and...

9. Problem 11.10 (Capital Budgeting Criteria:
Mutually Exclusive Projects)
eBook
A firm with a WACC of 10% is considering the following mutually
exclusive projects:
0
1
2
3
4
5
Project 1
-$300
$65
$65
$65
$230
$230
Project 2
-$550
$200
$200
$135
$135
$135
Which project would you recommend?
Select the correct answer.
a. Neither Project 1 nor 2, since each project's NPV <
0.
b. Both Projects 1 and 2, since both projects have IRR's >
0.
c....

Capital budgeting criteria: mutually exclusive projects
Project S costs $15,000 and its expected cash flows would be
$5,500 per year for 5 years. Mutually exclusive Project L costs
$40,500 and its expected cash flows would be $10,800 per year for 5
years. If both projects have a WACC of 15%, which project would you
recommend?
Select the correct answer.
I. Both Projects S and L, since both projects have NPV's >
0.
II. Project L, since the NPVL >
NPVS....

Capital budgeting criteria: mutually exclusive projects
Project S costs $11,000 and its expected cash flows would be
$4,000 per year for 5 years. Mutually exclusive Project L costs
$32,000 and its expected cash flows would be $14,700 per year for 5
years. If both projects have a WACC of 15%, which project would you
recommend?
Select the correct answer.
I. Neither S or L, since each
project's NPV < 0.
II. Project L, since the NPVL >
NPVS.
III. Project...

A firm with a WACC of 10% is considering the following mutually
exclusive projects:
0
1
2
3
4
5
Project 1
-$300
$45
$45
$45
$200
$200
Project 2
-$650
$250
$250
$45
$45
$45
Which project would you recommend?
Select the correct answer.
a. Neither Project 1 nor 2, since each project's NPV <
0.
b. Both Projects 1 and 2, since both projects have NPV's >
0.
c. Both Projects 1 and 2, since both projects have...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 4 minutes ago

asked 4 minutes ago

asked 36 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago