5) What is the NPV of a project, if the initial investment is $15 mill., firm's weighted average cost of capital is 11% per year, and the project is expected to provide after-tax operating cash inflows of $2 mill in year 1, $2.9 mill in year 2, $3.3 mill. in year 3, and $1 mill. in year 4? a) -$5.8 mill. b) $22.23 mill. c) -$7.77 mill. d) $7.77 mill. 6) A firm is evaluating three mutually exclusive capital budgeting nrojects. The net present value of each project is shown below. Given this information, which project(s) should the firm accept? Project 1 100,000 Project 2 10,000 Project 3 - 100,000 NPV, S a) accept Projects 1 and 2, and reject Project 3 b) accept Projects 1 and 3, and reject Project 2 c) accept Project 3, and reject Projects 1 and 2 d) accept Project 1, and reject Projects 2 and3 7) What is the profitability index of a project that requires an initial investment of S50 mill. and inflows of $10 mill. per year for the next 10 years, if the annual cost of capital is 10 percent? Note, the firm is using the following formula: Profitability Index = (NPV/Initial Investment)*100 a) 22.89% b) 0.23% c) 100% d) 118.18% mises cash Illustration 2. A firm must choose from six independent capital budgeting proposals outlined below. The firm is subject to capital rationing and has a capital budget of $1,000,000; the firm's cost of capital is 15 percent per year. Project Initial investment, S 200,000 400,000 250,000 200,000 150,000 400,000 IRR, % 19 17 NPV, S 100,000 20,000 60,000 - 5,000 50,000 150,000 16 12 20 15 8) See illustration 2, if the firm is using the Profitability Index approach to ranking these projects, which project(s) should the firm accept? a) 1, 2, 3, 5, and 6 b) 1, 2, 3, and 5 c) 2, 3, 4, and 6 d) 1, 3, 5, and 6 2