Answer the following questions.
38, Which statement comparing two mutually exclusive projects, X and Y, is most consistent with an optimal capital budgeting strategy? a. X is worst when X's NPV is less than Y's NPV b. X is worst when X's cost is more than Y's cost C. X is best when X's rate of return is more than Y's rate of return d. when X's IRR is smaller than Y's, then X's NPV must be smaller too e. A and D 5. Alicia is considering adding toys to her gift shop. She estimates that the cost of inventory will be $10,500. The remodeling expenses and shelving costs are estimated at $500. Toy sales are expected to produce net cash inflows of $2,800, $5,700, $3,200, and $3,400 over the next four years, respectively. Should Alicia add toys to her store if she assigns a two-year payback period to this project? Why or why not? A. No; The payback period is 2.78 years. B. No; The payback period is 3.38 years. C. Yes; The payback period is 2.78 years. D. Yes; The payback period is 3.01 years. E. Yes; The payback period is 3.38 years. 6. Shannon Industries is considering a project that has the following cash flows: Project Year Cash Flow $-7500 1 2,000 &W Nd 3,000 1,500 The project has a payback of 2.5 years. The firm's cost of capital is 11 percent. What is the project's net present value (NPV]? a. 1995.57 b.1380.72 C.550.68 d. 3765.91 e.2761.32 12. You are trying to decide whether you should purchase a Camry from Toyota or lease it. You expect to keep the car for 6 years, after which it has only $6000 value. If you purchase it, the price is $25,000, payable now, and you would have to pay an annual service charge of $2,000. Ifyou lease it, you would have an annual payment of $5,000 each year with the first one today. Note that at the end of the 6th year you neither pay the service charge nor the lease payment. The interest rate is 3.8%. Which option is least costly? a. Buy the car since interest rates are low b. Buy the car because it would be cheaper C. Lease the car since leasing is cheaper d. Lease the car since you don't pay for services e. You cannot decide because you cannot calculate the IRR of the investment 18. You are considering two independent projects with the following cash flows. The required return for both projects is 10%. Given this information, which one of the following statements is corr Year Project A Project B -$950,000 -$125,000 $330,000 $ 55,000 $400,000 $ 50,000 $450,000 $ 50,000 You should accept project B since it has the higher IRR and reject project A. b. You should accept project A because it has the lower NPV and reject project B. C. You should accept project A because it has the higher NPV and reject project B. d. You should accept project B because it has the higher IRR and reject project A. e. You should accept both projects
