Capital Invest Inc uses a 12% hurdle rate for all capital expenditures and has done the following analyses for 4 projects for the year.

Proj1 Proj2 Proj3 Proj4

Initial Capital Outlay $200,000 $298,000 $248,000 $272,000

Annual Net Inflows

YR1 $ 65,000 $100,000 $ 80,000 $ 95,000

YR2 70,000 135,000 95,000 125,000

YR3 80,000 90,000 90,000 90,000

YR4 40,000 65,000 80,000 60,000

9. The net present value of this project is:

Proj1 Proj2 Proj3 Proj4

a. (3,798) 4,276 14,084 14,662

b. 3,798 (4,276) 14,084 14,662

c. (55) (92) (97) (98)

d. 55 92 97 98

10. The Profitability Index (rounded) of this project is:

Proj1 Proj2 Proj3 Proj4

a. 98% 101% 106% 105%

b. 101% 115% 116% 98%

c. 98% 101% 105% 101%

D. 101% 98% 106% 105%

11. The internal rate of return (rounded) of this project is:

Proj1 Proj2 Proj3 Proj4

a. 11% 13% 15% 15%

b. 13% 11% 14% 15%

c. 14% 15% 11% 13%

d. 11% 13% 15% 14%

12. Assuming the company has no budget restrictions, which projects should be undertaken:

a. All 4 projects

b. Projs 1, 2, and 3

c. Projs 2, 3, and 4

d. Projs 1, 3, and 4

13. Regardless of whether your answer in the prior question is correct or wrong, the right answer is justified because:

a. A company with no budget restrictions should undertake projects with positive net present value.

b. A company with no budget restrictions should undertake only projects with the highest IRR .

c. A company with no budget restrictions should undertake only projects with profitability index of 100%.

d. A company with no budget restrictions should undertake only a project that has the least initial outlay.

14. Which of the project(s) should be undertaken if it has only $600,000 funding available?

a. Projects 1 and 3

b. Projects 2, 3, and 4

c. Projects 2 and 3

d. Projects 3 and 4

15. Regardless of your answer in the prior question is correct or wrong, the right answer is justified because:

a. The projects that have the highest NPVs, Profitability Indeces, and IRRs should be undertaken when there is capital rationinglimited capital budgets.

b. Only the project that has the highest NPV should be undertaken

c. Only the project that has the least initial capital outlay should be undertaken.

d. Only the projects that can fit in the limited budget should be undertaken.

16. Which projects should be undertaken if it has oly $300,000 of capital available:

a. Project 1 only

b. Projects 2, 3, and 4

c. Projects 3 and 4

d. Project 4 only

17. Regardless of your answer in the prior question is correct or wrong, the right answer is justified because:

a. Given that budget is limited, the project that fits the budget with the highest profitability index and has a positive NPV should be undertaken.

b. Given that budget is limited, the profitability index should be disregarded and the project that has the highest NPV that fits the budget should be undertaken.

c. Given that budget is limited, the project that fits the budget that has the highest internal rate of return should be undertaken.

d. Given that budget is limited, the project has the least capital outlay should be undertaken.