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QUESTION 7 You are on the staff of Strawberry Jam Inc. The CFO believes project acceptance should be based on the NPV, but Jenny Berry,
QUESTION 7 You are on the staff of Strawberry Jam Inc. The CFO believes project acceptance should be based on the NPV, but Jenny Berry, the president, insists that no project should be accepted unless its IRR exceeds the project's risk-adjusted WACC. Now you must make a recommendation on a project that has a cost of $15,000 and two cash flows: $110,000 at the end of Year 1 and -$100,000 at the end of Year 2. The president and the CFO both agree that the appropriate WACC for this project is 10%. At 10%, the NPV is $2,355.37, but you find two IRRs, one at 6.33% and one at 527%, and a MIRR of 11 .32% The following statement is your optimal recommendation for this project. What can be the proper words for the each blank? You should recommend that the project be accepted/rejected because (1) its NPV is positiveegative and (2) although it has two IRRs, in this case it would be better to focus on the MIRR, which exceeds/below the WACC. You should explain this to the president and tell him that the firm's value will increase if the project is accepted/rejected (accepted/ positive / below / accepted) (accepted /positive/ below/ accepted) (rejected / positive/ exceeds / rejected) (rejected / positive/below / accepted) (accepted egative / exceeds/accepted) (accepted / positive/ exceeds / accepted) C. D. QUESTION 9 Hot Pancakes Inc. purchased some fixed assets classified as five- year property for MACRS. The assets cost $125,000. The MACRS rates are .2,.32,.192, .1152, .1152, and.0576 for years 1 to 6, respectively. What will the accumulated depreciation be at the end of Year 4? A$101,779.20 $25,056.67 $42,002.89 0$48,755.09 E$103,400.00 B. QUESTION 10 The modified accelerated cost recovery system (MACRS) allows an increase: in real but not nominal depreciation expense in total depreciation over the asset's life. in annual depreciation during earlier years D. in the asset's depreciable cost basis
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