Question
Best Co. is evaluating the following mutually exclusive projects for investment (numbers are in $ millions). Period Proj. A Proj. B Proj. C 0 -10
Best Co. is evaluating the following mutually exclusive projects for investment (numbers are in $ millions).
Period | Proj. A | Proj. B | Proj. C |
0 | -10 | -15 | -20 |
1 | 3 | 3 | 4 |
2 | 3 | 4 | 5 |
3 | 3 | 5 | 6 |
4 | 3 | 6 | 7 |
5 | 3 | 7 | 8 |
All else being equal, as the initial investment of a project increases, what happens to its NPV?
Group of answer choices
NPV increases
NPV decreases
NPV stays the same
Best Co. is evaluating the following mutually exclusive projects for investment (numbers are in $ millions).
Period | Proj. A | Proj. B | Proj. C |
0 | -10 | -15 | -20 |
1 | 3 | 3 | 4 |
2 | 3 | 4 | 5 |
3 | 3 | 5 | 6 |
4 | 3 | 6 | 7 |
5 | 3 | 7 | 8 |
What is the internal rate of return (IRR) of Proj. C?
Group of answer choices
IRR 12.0%
12.0% < IRR 14.0%
14.0% < IRR 16.0%
16.0% < IRR
Best Co. is evaluating the following mutually exclusive projects for investment (numbers are in $ millions).
Period | Proj. A | Proj. B | Proj. C |
0 | -10 | -15 | -20 |
1 | 3 | 3 | 4 |
2 | 3 | 4 | 5 |
3 | 3 | 5 | 6 |
4 | 3 | 6 | 7 |
5 | 3 | 7 | 8 |
Based on the NPV rule, if the appropriate discount rate is 15% and the projects are mutually exclusive, which project(s) should Best Co. accept?
Group of answer choices
Project A
Project B
Project C
None of the projects
Best Co. is evaluating a project that will increase annual sales by $100,000 per year and incremental cash costs by $60,000 per year. The project will require an investment of $125,000 in fixed assets, which can be depreciated on a straight-line to a zero book-value over the 5-year life of the project. The applicable tax rate is 25%. The company expects the fixed asset can be sold at the end of the project (year 5) for $7,500 salvage value.
If the appropriate discount rate for this project is 12% (after tax), based on the NPV rule, should you accept this project?
Group of answer choices
Yes
No
Cannot be solved
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