Question
A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows: 0 1
A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows:
0 | 1 | 2 | 3 | 4 | 5 |
Project M | -$6,000 | $2,000 | $2,000 | $2,000 | $2,000 | $2,000 |
Project N | -$18,000 | $5,600 | $5,600 | $5,600 | $5,600 | $5,600 |
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Calculate NPV for each project. Do not round intermediate calculations. Round your answers to the nearest cent.
Project M: $
Project N: $
Calculate IRR for each project. Do not round intermediate calculations. Round your answers to two decimal places.
Project M: %
Project N: %
Calculate MIRR for each project. Do not round intermediate calculations. Round your answers to two decimal places.
Project M: %
Project N: %
Calculate payback for each project. Do not round intermediate calculations. Round your answers to two decimal places.
Project M: years
Project N: years
Calculate discounted payback for each project. Do not round intermediate calculations. Round your answers to two decimal places.
Project M: years
Project N: years
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Assuming the projects are independent, which one(s) would you recommend?
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Only Project M would be accepted because NPV(M) > NPV(N).
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Only Project N would be accepted because NPV(N) > NPV(M).
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Both projects would be accepted since both of their NPV's are positive.
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Only Project M would be accepted because IRR(M) > IRR(N).
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Both projects would be rejected since both of their NPV's are negative.
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If the projects are mutually exclusive, which would you recommend?
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If the projects are mutually exclusive, the project with the highest positive NPV is chosen.
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Accept Project N.If the projects are mutually exclusive, the project with the highest positive IRR is chosen.
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Accept Project M.If the projects are mutually exclusive, the project with the highest positive MIRR is chosen.
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Accept Project M.If the projects are mutually exclusive, the project with the shortest Payback Period is chosen.
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Accept Project M.If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project N.
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Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR?
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The conflict between NPV and IRR is due to the fact that the cash flows are in the form of an annuity.
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The conflict between NPV and IRR is due to the difference in the timing of the cash flows.
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There is no conflict between NPV and IRR.
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The conflict between NPV and IRR occurs due to the difference in the size of the projects.
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The conflict between NPV and IRR is due to the relatively high discount rate.
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