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7. Two projects being considered are mutually excl...




7. Two projects being considered are mutually exclusive and have the following cash flows: If the required rate of return on these projects is 10 percent, which would be chosen and why? (Points : 1) Project B because of higher NPV. Project B because of higher IRR. Project A because of higher NPV. Project A because of higher IRR. Neither, because both have IRRs less than the cost of capital. 8. The Oneonta Chemical Company is evaluating two mutually exclusive pollution control systems. Since the company's revenue stream will not be affected by the choice of control systems, the projects are being evaluated by finding the PV of each set of costs. The firm's required rate of return is 13 percent, and it adds or subtracts 3 percentage points to adjust for project risk differences. System A is judged to be a high-risk project (it might end up costing much more to operate than is expected). The appropriate risk-adjusted discount rate that should be used to evaluate System A is (Points : 1) 10%; this might seem illogical at first, but it correctly adjusts for risk where outflows, rather than inflows, are being discounted. 13%; the firm's cost of capital should not be adjusted when evaluating outflow only projects. 16%; since A is more risky, its cash flows should be discounted at a higher rate, because this correctly penalizes the project for its high risk. Somewhere between 10% and 16%, with the answer depending on the riskiness of the relevant inflows. Indeterminate, or, more accurately, irrelevant, because for such projects we would simply select the process that meets the requirements with the lowest required investment. 9. An insurance firm agrees to pay you $3,310 at the end of 20 years if you pay premiums of $100 per year at the end of each year of the 20 years. Find the internal rate of return to the nearest whole percentage point. (Points : 1) 9% 7% 5% 3% 11% 10. Whitney Crane Inc. has the following independent investment opportunities for the coming year: The IRRs for Project A and C, respectively, are: (Points : 1) 16% and 14% 18% and 10% 18% and 20% 18% and 13% 16% and 13%,Here it it. Thanks,I sent you a file but I guess it didn't go thru, so I copy and paste.. ***Cash Flow Required: Question 7: Year Project A Project B 0 -$50,000 -$50,000 1 $15,625 $0 2 $15,625 $0 3 $15,625 $0 4 $15,625 $0 5 $15,625 $99,500 Question 10: Project Cost Annual Cash Inflow Life (Years) IRR A $10,000 $11,800 1 B $5,000 $3,075 2 15% C $12,000 $5,696 3 D $3,000 $1,009 4 13%


Paper#5679 | Written in 18-Jul-2015

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