Ch 11- Assignment - The Basics of Capital Budgeting

1

$375,000

$400,000

$475,000

$475,000

Year

Year 2

Year 3

Year 4

If the project's weighted average cost of capital (WACC) is 8%, the project's NPV (rounded to the nearest dollar) is:

O $424,060

O $363,480

O $403,867

O $404,447

Which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital

budgeting decisions? Check all that apply.

The payback period is calculated using net income instead of cash flows.

The payback period does not take the project's entire life into account.

The payback period does not take the time value of money into account.

Ch 11- Assignment - The Basics of Capital Budgeting

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8. Conclusions about capital budgeting

The decision process

before making capital budgeting decisions, finance professionals often generate, review, analyze, select, and implement long-term investment

proposals that meet firm-specific criteria and are consistent with the firm's strategic goals.

Companies often use several methods to evaluate the project's cash flows and each of them has its benefits and disadvantages. Based on your

understanding of the capital budgeting evaluation methods, which of the following conclusions about capital budgeting are valid? Check all that apply.

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Because the MERR and NPV use the same reinvestment rate assumption, they always lead to the same accept/reject decision for mutually

exclusive projects.

The discounted payback period improves on the regular payback period by accounting for the time value of money.

for most firms, the reinvestment rate assumption in the NPV is more realistic than the assumption in the IRR

True or False: Sophisticated firms use only the NPV method in capital budgeting decisions.

O que

O Fal

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