Question 14 of 20*
*Which of the following would be considered a capital budgeting decision?*
- *D. Pfizer develops a new therapy and brings it to market.*
(Capital budgeting involves long-term investment decisions, such as R&D or new product
development.)
### *Question 16 of 20*
*Rojo Service can purchase a new assembler for $15,052 with annual net cash flows of $6,000
for five years. Calculate NPV at 12%:*
- *D. $6,577*
(NPV = -15,052 + 6,000 × PVIFA(12%,5) = -15,052 + 6,000 × 3.6048 ≈ $6,577.)
### *Question 17 of 20*
*The payback method focuses on recovery time rather than total value added.*
- *A. TRUE*
(Payback ignores cash flows beyond the payback period and does not measure profitability.)
### *Question 18 of 20*
*Project Black Swan (initial $115,000; +$140,000 in Years 1-2; -$170,000 in Year 3) at 12%:*
- *B. accepted because the NPV is positive at 12%.*
(NPV ≈ $18,356, as calculated earlier.)
*Question 19 of 20*
*Project Black Swan (same cash flows):*
- *D. This project might have more than one IRR.*
*Question 20 of 20*
*Project April ($50,000 NPV cost) vs. Project October ($40,000 NPV cost) at 9%:*
- *D. October because it has a lower net present cost.*
(When projects have no positive cash flows, the one with the lower cost is preferred.)
*Additional Question (from 1000221782.jpg)*
*A forklift investment ($100,000 initial; $50K, $40K, $30K cash flows). What does not change if
the discount rate increases from 10% to 12%?*
- *B. The internal rate of return.*
(IRR is independent of the discount rate; it depends solely on cash flows.)
(Question 19).
- *Cost-Based Decision:* Choose Project October (Question 20).
- *IRR Independence:* Unaffected by discount rate changes (Forklift question).
### *Question (1000221774.jpg) - Mass Waste Disposal Inc. MIRR Calculation*
*Initial cost: $20 million; Cash flows: +$7M (Years 1-4), -$5M (Year 5); Discount rate: 10%.*
- *A. 8.16%, rejected.*
(MIRR is calculated by reinvesting positive cash flows at 10% and financing negative cash flows
at 10%. The MIRR of 8.16% is less than the discount rate, so the project should be rejected.)
### *Question 10 of 20 (1000221777.jpg) - Project Full Moon IRR Decision*
*Initial outlay: $30,000; Cash flows: $10K (Year 1), $15K (Years 2-3).*
- *B. less than 14.6%.*
(The IRR is ~14.6%. Accept if required return is below IRR.)
### *Machine IRR (1000221771.jpg)*
*Cost: $5,375,000; Cash inflows: $1.825M (Year 1) to $1.65M (Year 5).*
- *B. 17.81%*
(Solve for IRR where NPV = 0 using financial calculator or Excel.)
### *Question 7 of 20 (1000221765.jpg & 1000221762.jpg) - Equivalent Annual Cost (EAC)*
*Initial investment: $15,000; Annual cost: $4,000; Life: 5 years; Discount rate: 8.5%.*
- *A. $7,806.49*
(EAC = [15,000 + PV of $4,000 annuity (5 years, 8.5%)] / PVIFA(8.5%,5) ≈ $7,806.49.)
### *Question 6 of 20 (1000221768.jpg) - Capital Budgeting Errors*
*Errors from capital budgeting decisions average out over time.*
- *B. FALSE*
(Errors can have long-term, significant impacts; they do not simply "average out.")
### *Capital Budgeting Practices (1000221759.jpg & 1000221756.jpg)*
*Popular techniques in large corporations:*
- *B. IRR and NPV have been gaining in popularity.*
(These are the most widely used methods for evaluating projects.)
### *Project Black Swan (1000221753.jpg)*
*Initial: $115,000; +$140K (Years 1-2); -$170K (Year 3).*
- *D. This project might have more than one IRR.*
(Non-conventional cash flows can lead to multiple IRRs.)
*Discounted Cash Flow Techniques (1000221747.jpg)*
*Usage depends on project size and decision context.*
- *A. TRUE*
(Larger projects typically require more rigorous analysis like NPV/IRR.)
### *Question (1000221750.jpg) - Primary Capital Budgeting Techniques*
*Currently, most firms use NPV and IRR as their primary capital-budgeting technique.*
- *A. TRUE*
(NPV and IRR are the most widely used methods for evaluating investment projects due to
their focus on time value of money and profitability.)
### *Question (1000221744.jpg) - Technique Emphasizing Early Cash Flows*
*Which technique places the greatest emphasis on cash flows received early in the project's
life?*
- *D. Payback*
(The payback method prioritizes how quickly an investment recovers its initial cost, ignoring
cash flows beyond the payback period. This inherently emphasizes early cash flows.)
