Question 11: You are considering whether to launch a new product and want to determine the financial feasibility. If you undertake the project, it will cost $10,000 to launch and the new product will generate annual net cash flows of $5,000, $4,000, $3,000 and $1,000 during the first four years, respectively. You will finance the project with debt and equity and your cost of capital for the project is 10%. Which statement below is incorrect? (This question is worth 2 points.)

a) The project is financially feasible.

b) The net present value of the project is approximately $788.20.

c) The net present value of the project is approximately $788.20, so the project is financially feasible.

d) The net present value of the project is approximately $788.20, so the project is financially feasible, and should be accepted.

e) The internal rate of return generated by the project exceeds the required rate of return.

f) The internal rate of return generated by the project is approximately 14.49%.

g) The companys return on the project is approximately 4.49%.

h) No statement is incorrect.

Question 12: Which of the following statements is correct? (This question is worth 2 points.)

a) A capital budgeting decision is actually a company investment decision.

b) There is little theoretical difference in the way a company would financially analyze which stocks or bonds it would purchase with excess capital or whether expanding into a new market would be financially feasible because the company would estimate a set of cash outflows and inflows and calculate the present value of the net cash flow discounted by the cost of capital.

c) The term Net Present Value can be seen as the term Present Value of the future net cash flows as discounted by a projects cost of capital, Net, i.e., less, the initial investment.

d) If a projects value exceeds zero, the project can be accepted.

e) If there are two projects where the net present value exceeds zero, and the projects are mutually exclusive then the company should accept the project with the larger net present value.

f) IRR is important because it measures a projects return on investment for the company.

g) A project with a positive NPV will have a positive IRR.

h) Each statement is correct.