Question 1

Discounted payback

Project K costs $45,000, its expected cash inflows are $11,000 per year for 8 years, and its WACC is 8%. What is the project's discounted payback? Round your answer to two decimal places.

years

Question 2

Payback period

Project K costs $60,000, its expected cash inflows are $15,000 per year for 8 years, and its WACC is 12%. What is the project's payback? Round your answer to two decimal places.

( )years

Question 3

Capital budgeting criteria: mutually exclusive projects

Project S costs $14,000 and its expected cash flows would be $4,500 per year for 5 years. Mutually exclusive Project L costs $43,000 and its expected cash flows would be $12,300 per year for 5 years. If both projects have a WACC of 12%, which project would you recommend?

Select the correct answer.

I. Neither S or L, since each project's NPV < 0.

II. Both Projects S and L, since both projects have IRR's > 0.

III. Project L, since the NPVL > NPVS.

IV. Project S, since the NPVS > NPVL.

V. Both Projects S and L, since both projects have NPV's > 0.

Question 4

NPV

Project K costs $70,000, its expected cash inflows are $12,000 per year for 12 years, and its WACC is 10%. What is the project's NPV? Round your answer to the nearest cent.

$ ( )

Question 5

Capital budgeting criteria: mutually exclusive projects

A firm with a WACC of 10% is considering the following mutually exclusive projects:

0

1

2

3

4

5

Project A	-$400	$55	$55	$55	$195	$195
Project B	-$450	$300	$300	$40	$40	$40

Which project would you recommend?

Select the correct answer.

I. Project B, since the NPVB > NPVA.

II. Both Projects A and B, since both projects have IRR's > 0.

III. Neither A or B, since each project's NPV < 0.

IV. Project A, since the NPVA > NPVB.

V. Both Projects A and B, since both projects have NPV's > 0.

Question 6

IRR

Project K costs $52,894.84, its expected cash inflows are $11,000 per year for 11 years, and its WACC is 10%. What is the project's IRR? Round your answer to two decimal places.

( )%