1- What is the NPV of each project? According to NPV, which project(s) should be accepted if...
Question:
1- What is the NPV of each project? According to NPV, which project(s) should be accepted if they are independent? Mutually exclusive?
2- What is the IRR of each project? According to IRR, which project(s) should be accepted if they are independent? Mutually exclusive?
3- What is the payback period for each project? According to the payback criterion, which project(s) should be accepted if the firm’s maximum acceptable payback is two years if Projects L and S are independent?
4- What are the two main disadvantages of discounted payback? Is the payback method useful in capital budgeting decisions? Explain.
5- Colsen Communications is trying to estimate the first-year cash flow (at Year 1) for a proposed project. The assets required for the project were fully depreciated at the time of purchase. The financial staff has collected the following information on the project:
Sales revenues: $ 20 million
Operating costs: 14 million
Interest expense: 2 million
The company has a 30% tax rate, and its WACC is 14%. What is the project’s cash flow for the first year?
Fundamentals of Financial Management
ISBN: 978-0324597707
12th edition
Authors: Eugene F. Brigham, Joel F. Houston