Before making capital budgeting decisions, finance professionals often generate review, analyze, select, and implement long-term investment proposals that meet fim-specific criteria and are consistent with the fim's strategic goals. Companies often use several methods to evaluate the project's cash flows and each of them has its benefits and disadvantages, based on your understanding of the capital budgeting evaluation methods, which of the following conclusions about capital budget ing are valid? Check all that apply. 1 Ao The NPV shows how much value the company is creating for its shareholders. BO Because the MIRR and NPV use the same reinvestment rate assumption, they always lead to the same acceptreject decision for mutually exclusive projects. CO For most firms, the reinvestment rate assumption in the MIRR is more realistic than the assumption in the IRR. True or False: Sophisticated fims use only the NPV method in capital budgeting decisions. O True Bo False Please answer ENTIRE question Blue Elk Manufacturing is a U.S. firm that wants to expand its business intemationally, it is considering potential projects in both Italy and Thailand, and the Italian project is expected to take six years, whereas the Thai project is expected to take only three years. Howeverthe firm ANSWER CHOICES plans to repeat the Thai project after three years. These projects are mutually exclusive, so Blue Elk Manufacturing's CFO plans to use the replacement chain approach to analyze both projects. The expected cash flows for both projects follow 1. A, B, C, Project: Italian Project: Thai If Blue Elk Manufacturing's cost of 2. A, B Year o: $700,000 Year : $475,000 capital is 9%, what is the NPV of the Year 1 $240,000 3. A, B, C, D Italian project $225,000 Year 1 : Year 2. $270,000 Year 2: 235,000 3 AO $298,557 4. A, B, C, D Year 3: $290,000 Year 3: $255,000 o $268,701 5. A, B, C, D Year 4 $250,000 CO $238,846 Year 5: $130,000 o $313,485 6. Mutually Exclusive, Independent Year 6 $110,000 Assuming that the Thai project's cost and annual cash inflows do not change when the project is repeated in three years and that the cost of capital will remain at 9%, what is the NPV of the Thai project, using the replacement chain approach? 4 Ao $257,041 Bo $223,514 Co $212,338 Do $201,163 Fuzzy Badger Transport Company is considering a three-year project that has a weighted average cost of capital of 10% and a net present value (NPV) of $85,647. Fuzzy Badger Transport Company can replicate this project indefinitely. What is the equivalent annual annuity (EAA) for this project? 5 A O$36,162 O$34,440 O $39,606 Do $37,884 An analyst wi need to use the EAA approach to evaluate projects with unequa ives when the projects are
