A) Ace Industries is evaluating two mutually exclusive projects. Project A has an initial cost of $1,500 and is expected to increase company cash flows by $900 in year 1, $300 in year 2, $700 in year 3, $200 in year 4, and $200 in year 5. Both projects are expected to last for 5 years. Project B has an initial cost of $1,000 and is expected to increase company cash flows by $600 in year 1, $300 in year 2, $600 in year 3, $800 in year 4, and $800 in year 5. Ace is having to pay 8% interest on bonds sold to finance projects. Both projects have the same risk as the firms average project. Which of the two mutually exclusive projects would you select?

1) Project A

2) Project B

3) both

4) neither

B) The decision whether to purchase capital assets to take the place of existing assets to maintain or improve existing operations

1) always involves independent projects

2) always involves mutually exclusive projects

3) is a replacement decision

4) is an expansion decision

C) The decision whether to purchase capital projects and add them to existing assets to increase existing operations

1) always involves independent projects

2) always involves mutually exclusive projects

3) is a replacement decision

4) is an expansion decision

D) The benefits of a post audit include 1) improving capital budgeting forecasts by finding and decreasing biases in the process 2) improving operations by giving employees benchmarks to work toward 3) using information from the post-audit to apply for special tax breaks 4) both 1 and 2 are benefits of the doing a post-audit

E) Which capital budgeting methods are most used today 1) Payback period and NPV 2) IRR and Payback period 3) IRR and NPV 4) Payback period, NPV, and IRR are all used about the same