Question Details

If Denver- cost of capital is 15 percent, which project would you choose 



1.	Coughlin Motors is considering a project with the following expected cash flows:

		Project
	Year          Cash Flow	
0	-$700 million
1	200 million
2	370 million
3	225 million
4	700 million

The project- WACC is 10 percent.  What is the project- discounted payback?

a.	3.15 years
b.	4.09 years
c.	1.62 years
d.	3.09 years  
2.	As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows:

           		    		 Project X  	   Project Z
                  Year     Cash Flow     Cash Flow
                   0       -$100,000     -$100,000
                   1          50,000        10,000
                   2          40,000        30,000
         	      	3          30,000         40,000
                   4          10,000        60,000

If Denver- cost of capital is 15 percent, which project would you choose ?

a.	Neither project.  
b.	Project X, since it has the higher IRR.
c.	Project Z, since it has the higher NPV.
d.	Project X, since it has the higher NPV.
3.    Assume a project has normal cash flows.  All else equal, which of the following statements is CORRECT?

a.	The project- IRR increases as the WACC declines.
b.	The project- NPV increases as the WACC declines.  
c.	The project- MIRR is unaffected by changes in the WACC.
d.	The project- regular payback increases as the WACC declines.
4.      Which of the following statements is CORRECT?

a.	One defect of the IRR method is that it does not take account of cash flows over a project- full life.
b.	One defect of the IRR method is that it does not take account of the time value of money.
c.	One defect of the IRR method is that it does consider the time value of money. 
d.	One defect of the IRR method is that it assumes that the cash flows to be received from a project can be reinvested at the IRR itself, and that assumption is often not valid.   




Business Management Assignment Help, Business Management Homework help, Business Management Study Help, Business Management Course Help