CAPITAL BUDGETING CRITERIA A firm with a 13 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 $12,000 $4,000 $4,000 $4,000 $4,000 $4,000 Project N $36,000 $11,200 $11,200 $11,200 $11,200 $11,200 NPV for each project Project M $ 2,068 93 Project N $3,392 99 IRR for each project Project M 19 86 Project N 16 80 MIRR for each project Project M 16 65 Project N 15 05 Calculate payback for each project Round your answers to two decimal places Do not round your intermediate calculations Project M 3 00 years Project N 3 21 years Discounted payback for each project Project M 4 05years Project N 4 04 years Assuming the projects are independent, which one(s) would you recommend Select Only Project M would be accepted because IRR(M) IRR(N) Both projects would be rejected since both of their NPV's are negative Only Project M would be accepted because NPV(M) NPV(N) Only Project N would be accepted because NPV(N) NPV(M) Both projects would be accepted since both of their NPV's are positive Item 11 If the projects are mutually exclusive, which would you recommend Select If the projects are mutually exclusive, the project with the highest positive IRR is chosen Accept Project N If the projects are mutually exclusive, the project with the highest positive NPV is chosen Accept Project N If the projects are mutually exclusive, the project with the highest positive IRR is chosen Accept Project M If the projects are mutually exclusive, the project with the highest positive MIRR is chosen Accept Project M If the projects are mutually exclusive, the project with the shortest Payback Period is chosen Accept Project M Item 12 Notice that the projects have the same cash flow timing pattern Why is there a conflict between NPV and IRR Select There is no conflict between NPV and IRR The conflict between NPV and IRR occurs due to the difference in the size of the projects The conflict between NPV and IRR is due to the relatively high discount rate The conflict between NPV and IRR is due to the fact that the cash flows are in the form of an annuity The conflict between NPV and IRR is due to the difference in the timing of the cash flows Item 13

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CAPITAL BUDGETING CRITERIA A firm with a 13% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as

CAPITAL BUDGETING CRITERIA

A firm with a 13% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows:

Project M	-$12,000	$4,000	$4,000	$4,000	$4,000	$4,000
Project N	-$36,000	$11,200	$11,200	$11,200	$11,200	$11,200

NPV for each project: Project M $ 2,068.93 Project N $3,392.99

IRR for each project: Project M 19.86% Project N 16.80%

MIRR for each project: Project M 16.65 % Project N 15.05%

Calculate payback for each project. Round your answers to two decimal places. Do not round your intermediate calculations. Project M 3.00 years Project N 3.21 years

Discounted payback for each project: Project M 4.05years Project N 4.04 years

Assuming the projects are independent, which one(s) would you recommend? -Select-Only Project M would be accepted because IRR(M) > IRR(N).Both projects would be rejected since both of their NPV's are negative.Only Project M would be accepted because NPV(M) > NPV(N).Only Project N would be accepted because NPV(N) > NPV(M).Both projects would be accepted since both of their NPV's are positive.Item 11
If the projects are mutually exclusive, which would you recommend? -Select-If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project N.If the projects are mutually exclusive, the project with the highest positive NPV is chosen. Accept Project N.If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project M.If the projects are mutually exclusive, the project with the highest positive MIRR is chosen. Accept Project M.If the projects are mutually exclusive, the project with the shortest Payback Period is chosen. Accept Project M.Item 12

Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR? -Select-There is no conflict between NPV and IRR.The conflict between NPV and IRR occurs due to the difference in the size of the projects.The conflict between NPV and IRR is due to the relatively high discount rate.The conflict between NPV and IRR is due to the fact that the cash flows are in the form of an annuity.The conflict between NPV and IRR is due to the difference in the timing of the cash flows.Item 13