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Question1

Question2
A

Unit7SelfAssessmentChapter10:TheBasicsofCapitalBudgeting
VanAukenInc.isconsideringaprojectthathasthefollowingcashflows:
Projected
Payback
2.6
Year
CashFlow
0
1,000
IRR
21.22%
1
400
NPV
$ 260.43
2
300
3
500
4
400
Whataretheprojectspayback,internalrateofreturn,andnetpresentvalue?
WACC:
10.00%

Question4
D

Year:
Year0
Year1
Year2
Year3
CashFlow:
$(1,000.00) $ 450.00 $ 460.00 $ 470.00
WACC:
10.00%
NPV
$142.37
AdlerEnterprisesisconsideringaprojectthathasthefollowingcashflowandWACCdata.Whatistheproject'sNPV?
Notethataproject'sprojectedNPVcanbenegative,inwhichcaseitwillberejected.
Year:
Year0
Year1
Year2
Year3
CashFlow:
$(950.00) $ 500.00 $ 400.00 $ 300.00
WACC:
10.00%
NPV
$60.52
BabcockInc.isconsideringaprojectthathasthefollowingcashflowandWACCdata.Whatistheproject'sNPV?Note
thataproject'sprojectedNPVcanbenegative,inwhichcaseitwillberejected.
Year:
Year0
Year1
Year2
Year3
CashFlow:
$(1,000.00) $ 450.00 $ 470.00 $ 490.00

Question5
C

IRR
19.05%
ChoiComputerSystemsisconsideringaprojectthathasthefollowingcashflowdata.Whatistheproject'sIRR?Notethat
aproject'sprojectedIRRcanbelessthantheWACC(andevennegative),inwhichcaseitwillberejected.
Year:
Year0
Year1
Year2
Year3
Year4
Year5
CashFlow:
$(1,000.00) $ 300.00 $ 295.00 $ 290.00 $ 285.00 $270.00

Question3
C

IRR
13.78%
ThompsonStoresisconsideringaprojectthathasthefollowingcashflowdata.Whatistheproject'sIRR?Notethata
project'sprojectedIRRcanbelessthantheWACC(andevennegative),inwhichcaseitwillberejected.
Notes:
IRRisthediscountratethatforcesPVinflows=cost
Netpresentvalue(NPV)isdefinedasthepresentvalueofaproject'scashinflowsminusthepresentvalueofitscosts.Ittellsushowmuch
theprojectcontributestoshareholderwealth.
ThelargertheNPV,themorevaluetheprojectaddsandthusthehigherthestock'sprice.
NPVisgenerallyreggardedasthebestsinglescreeningcriterion.