Finance capital budgeting questions. 13 total questions on the attached word document. Answer choices highlighted in red are FOR sure the wrong choice.

1. For this and the next 3: A project, with a cost of capital of 10%, has the following expected net cash flows: Year 0 1 2 NCF -5 30 -30 QUESTION 2 1. On spreadsheet, draw the NPV profile for this project. What is your conclusion based on your IRR analysis? IRR exceeds the cost of capital. Therefore the project should be accepted. IRR is less than the cost of capital. Therefore the project should NOT be accepted. Cash flow pattern is non-normal with multiple IRR. Therefore no economic interpretation can be given Although the cash flow pattern is non-normal, there is no case of multiple IRR. The project should be accepted. Although the cash flow pattern is non-normal, there is no case of multiple IRR. The project should NOT be accepted. None of the above is sufficient or correct. 1. QUESTION 3 Calculate the profitability index of the project. Should the project be accepted? The PI is positive. The project should be accepted The PI is negative. The project should NOT be accepted The PI is greater than 1. The project should be accepted The PI is less than 1. The project should NOT be accepted None of the above 1. QUESTION 4 Calculate the MIRR of the project given the cost of capital of 10%. 5.244% 5.324% 7.231% None of the above 1. QUESTION 5 For this and the next 3: Consider the following cash flows. Use a required rate of return of 10.25%: Year 0 1 2 3 Project L -$8,550 -1,500 9,000 5,000 QUESTION 7 Calculate the MIRR of the project. 14.62% 16.26% 12.33% None of the above 1. QUESTION 8 Calculate the profitability index (PI) of the project. SHOW WORK!!! 0.87 1.11 1.12 None of the above QUESTION 10 Which of the following capital components typically carries the highest cost? Common stock Notes payable Long term debt Preferred stock Retained earnings 1. QUESTION 11 For this and the next 2: Consider the following two projects: Year 0 1 2 3 Project L -$150 -15 90 220 Project S -150 105 100 -30 2. QUESTION 12 1. Calculate the crossover rate for the two projects. What is the significance of this rate? Crossover rate = 40.23%. It is the discount rate at which two competing projects have the same NPV. Crossover rate = 40.23%. Below this rate, NPV and IRR produce conflicting capital budgeting decisions. Crossover rate = 40.23%. Above this rate, there is no conflict in project selection by NPV and IRR. All of the above is correct None of the above 1. QUESTION 13 Given the nature of cash flows for Project L, is it possible for multiple IRR to exist? Yes No May be 1. QUESTION 14 The NPV and IRR produce conflicting capital budgeting decisions if: the cost of capital is equal to the crossover rate the cost of capital is less than the crossover rate the cost of capital is above the crossover rate conflicting rates could result regardless of where the discount rate lies 1. QUESTION 15 Consider the following set of net cash flows and the annual salvage values for a new delivery truck purchased by ABC Transportation Company. Cost of capital is 10%. What is the project's optimal economic life? Year 0 1 2 3 4 5 NCF -22,500 7,000 7,000 7,000 7,000 7,000 2 Salvage Value 22,500 18,000 14,800 11,000 8,000 0 years 3 years 4 years 5 years 1. QUESTION 16 For this and the next 3 questions. Consider the following MUTUALLY EXCLUSIVE projects. Cost of capital is 10%. Calculate IRR. Year 0 1 2 3 4 Project A -40,000 8,000 14,000 13,000 12,000 Project B -20,000 7,000 13,000 12,000 5 6 11,000 10,000 IRR (A) = 17.47%. IRR(B) = 25.20% IRR (A) = 17.77%. IRR(B) = 25.20% IRR (A) = 17.47%. IRR(B) = 20% None of the above is completely correct 1. QUESTION 19 Which project should be chosen and why? Project A; it has a higher EAA Project B; it has a higher EAA Both projects are equally acceptable 1. QUESTION 20 The purpose of Economic Life Analysis is to: Determine the optimal investment life of a project Determine the optimal cost of capital for a project Evaluate two mutually exclusive projects for their crossover rate Determine the optimal capital budget of a project None of the above