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##### general business data bank

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Question;Use the table for the question(s);below.;Consider the following two projects;Project;Year 0;C/F;Year 1;C/F;Year 2;C/F;Year 3;C/F;Year 4;C/F;Year 5;C/F;Year 6;C/F;Year 7;C/F;Discount;Rate;Alpha;-79;20;25;30;35;40;N/A;N/A;15%;Beta;-80;25;25;25;25;25;25;25;16%;10);The payback period for project Alpha is;closest to;A);3.2 years;B);2.9 years;C);3.1 years;D);2.6 years;11);The payback period for project beta is;closest to;A);2.9 years;B);3.1 years;C);2.6 years;D);3.2 years;12);Which of the following statements is;correct?;A);You should invest in project Beta since;NPVBeta> 0;B);You should invest in project Alpha since;IRRAlpha> IRRBeta;C);Your should invest i project Alpha since;NPVAlpha 0;Use the information for the question(s) below.;Larry the Cucumber has been offered $14;million to star in the lead role of the next three Larry Boy adventure;movies. If Larry takes this offer, he;will have to forgo acting in other Veggie movies that would pay him $5 million;at the end of each of the next three years.;Assume Larry's personal cost of capital is 10% per year.;13);Larry should;A);Reject the offer because the NPV< 0;B);Accept the offer even though the IRR 0;C);Reject the offer because the IRR 0%;14);You are considering an investment in an;everlasting gobstopper machine. This;machine will cost $10 million and will produce cash flows of $1 million and the;end of every year forever. The;appropriate cost of capital is 8%.;Compute the economic value added (EVA) for this project. The PV of the;EVAs for this project is.;a);2.4;b);2.6;c);2.5;d);2.2;15);You are considering purchasing a new;automated forklift system for your firm's warehouse. The automated forklift will cost $500,000 and;generate cash flows of $125,000 per year.;The forklift will depreciate evenly over the five years, at which point;it must be replaced. The cost of capital;is 8% per year. Based upon the EVA;investment rule, should you invest in the automated forklift?;6.3 Mutually Exclusive Investment;Opportunities;16);Which of the following statements is;false?;A);Problems can arise using the IRR method;when the mutually exclusive investments have different cash flow patterns.;B);The IRR is affected by the scale of the;investment opportunity.;C);Multiple incremental IRRs might exist.;D);The incremental IRR rule assumes that the;riskiness of the two projects is the same.;A;17);Which of the following statements is;false?;A);The incremental IRR investment rule applies;the IRR rule to the difference between the cash flows of the two mutually;exclusive alternatives.;B);When a manager must choose among mutually;exclusive investments, the NPV rule provides a straightforward answer.;C);The likelihood of multiple IRRs is greater;with the regular IRR rule than with the incremental IRR rule.;D);Problems can arise using the IRR method;when the mutually exclusive investments have differences in scale.

Paper#62459 | Written in 18-Jul-2015

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