Ch 11- Assignment - The Basics of Capital Budgeting

Year

2

Year 3

Year 4

$450,000

$425,000

$450,000

Which of the following is the correct calculation of project Sigma's R

O 27.93%

Ⓒ 32.12%

Ⓒ 30.72%

Ⓒ25.14%

If this is an independent project, the IRR method states that the firm should

If the project's cost of capital were to increase, how would that affect the IR

The IRR would increase

The IRR would not change.

The IRR would decrease

Ch 11- Assignment - The Basics of Capital Budgeting

3. Understanding the IRR and NPV

Year Cash Flow

Year 1

Year 2

Year 3

Year 4

accept project Sigma

reject project Sigma

The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to

make capital budgeting decisions.

Consider the case of Blue Hamster Manufacturing Inc.:

$1,800,000

$3,375,000

Grade It Now

Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of its planning and financial data when both its main and its backup

servers crashed. The company's CFO remembers that the internal rate of return (IRR) of Project Delta is 11.3%, but he can't recall how

much Blue Hamster originally invested in the project nor the project's net present value (NPV). However, he found a note that detailed

the annual net cash flows expected to be generated by Project Delta. They are:

$3,375,000

$3,375,000

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