5.a

b.

c.

d.

e.

A company can invest in only one of the following two projects. Both projects require an initial investment of $1,000,000 and the WACC is 6.5%. Which project should be selected? Project A cash flows: Year 1 $250,000; Year 2 $350,000; Year 3 $600,000. Project B cash flows: Year 1 $150,000; Year 2 $150,000; Year 3 $150,000; Year 4 $250,000; Year 5 $250,000; Year 6 $400,000. Project B because it has the highest NPV Project B because it has the highest EAA Project A because it has the highest NPV Project A because it has the highest EAA A project has the following cash flows: CFO = -1,000, CF1 = $400, CF2 = $400 & CF3 = $800, if the project's cost of capital is 7%, what is the Profitability Index (PI)? 1.32 O 1.38 1.42 1.45 If there are multiple IRRs for a project, which of the following is wrong? The project must be a financing project The cash flows change sign more than once during the project There is at least one discount rate at which NPV is equal to 0 You can use NPV to decide whether to accept or reject a project All of the following are strengths of Payback Period rule except It is fairly simple to calculate It focuses on quick cash recovery It allows a firm to arbitrarily choose the pay-back period It can be useful for day to day decisions You are considering the manufacturing of a new product. The equipment necessary to manufacture this item costs $600,000. The equipment has a life of six years and straight-line depreciation will be used (assume zero salvage). This firm's tax rate is 40% and the required rate of return on this risky project is 12%. Sales revenue is expected to be $250,000 per year and variable costs are expected to be 20% of sales. What is the per year break-even level of fixed costs? $13,440.90 $18,294.70 $23,440.90 $57,774.30