Previous Page Next Page Page 4 of 7 3 Use the following information about All I Got (NASDAQ: AIG) to answer questions 18-22 * AIG is evaluating a project that costs $30 million in year 0 and is expected to generate after-tax cash inflows equal to $5 million in year 1, $10 million in year 2, $15 million in year 3, and $20 million in year 4. The firm's cost of capital is 10 percent. 9 Question 18 (2.5 points) Assume that the firm is using only regular payback method to make its capital budgeting decision. (a) What is the regular (traditional) payback period? (b) If the target cutoff period is 3.5 years, should the firm accept the project? 1) 2.67 years: Reject. 14 2) 2.67 years: Accept. 12 3) 3.00 years: Reject. 4) 3.00 years: Accept. hip Question 19 (2.5 points) Assume that the firm is using only discounted payback method to make its capital budgeting decision. (a) What is the discounted payback period? (b) If the target cutoff period is 3 years, should the project be accepted? 1) 3.43 years; Reject. O 2) 3.43 years: Accept. 3) 3.07 years: Reject. 4) 3.07 years: Accept. 5) 2.67 years: Accept. Question 20 (2.5 points) Assume that the firm is using only net present value (NPV) to make its capital budgeting decision. (a) What is the NPV? (b) Should the project be accepted? hp Question 20 (2.5 points) Assume that the firm is using only net present value (NPV) to make its capital budgeting decision. (a) What is the NPV? (b) Should the project be accepted? 1) $12.739,908: Accept 2) $12.739.908: Reject. 3) $10,279,728: Accept 4) $10,279.728: Reject. 5) $7.739,908; Accept. 14 Question 21 (2.5 points) Assume that the firm is using only internal rate of return (IRR) to make its capital budgeting decision. (a) What is the IRR? (b) Should the project be accepted? op 3 2 Question 21 (2.5 points) Assume that the firm is using only internal rate of return (IRR) to make its capital budgeting decision. (a) What is the IRR? (b) Should the project be accepted? 5 6 1) 27.27%; Accept 2: 2) 19.19%: Accept. 8 9 3) 15.85%: Accept 11 4) 9.85% Reject 3: 5) 9.25%: Reject 13 14 Question 22 (2.5 points) Assume that the firm is using only modified internal rate of return (MIRR) to make its capital budgeting decision, (a) What is the MIRR? (b) Should the project be accepted? 116.50% Accept S 6 Question 22 (2.5 points) Assume that the firm is using only modified internal rate of return (MIRR) to make its capital budgeting decision. (a) What is the MIRR? (b) Should the project be accepted? 2: 1) 16.50%: Accept 8 9 2) 18.93%: Accept 11 3) 21.93%: Accept 3. 4) 21.93%; Reject 13 14 5) 24.39%: Reject 1 Previous Pace Next Page Page 4 of 7 hop & # 3 96 5 6 8 9 4
