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    Assignment Capital Budgeting

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    GHULAM NABI
    This document provides a capital budgeting assignment with 10 multiple choice and calculation questions. It asks students to evaluate potential investments using methods like payback period, net present value, and internal rate of return to determine which projects they should select. The questions involve calculating cash flows for machines, equipment and other investments over several years to compare alternatives and determine if they should be undertaken based on required rate of return.

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    Assignment Capital Budgeting

    Uploaded by

    GHULAM NABI
    10 views3 pages
    This document provides a capital budgeting assignment with 10 multiple choice and calculation questions. It asks students to evaluate potential investments using methods like payback period, net present value, and internal rate of return to determine which projects they should select. The questions involve calculating cash flows for machines, equipment and other investments over several years to compare alternatives and determine if they should be undertaken based on required rate of return.

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    Capital Budgeting

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    This document provides a capital budgeting assignment with 10 multiple choice and calculation questions. It asks students to evaluate potential investments using methods like payback period, net present value, and internal rate of return to determine which projects they should select. The questions involve calculating cash flows for machines, equipment and other investments over several years to compare alternatives and determine if they should be undertaken based on required rate of return.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    10 views3 pages

    Assignment Capital Budgeting

    Uploaded by

    GHULAM NABI
    This document provides a capital budgeting assignment with 10 multiple choice and calculation questions. It asks students to evaluate potential investments using methods like payback period, net present value, and internal rate of return to determine which projects they should select. The questions involve calculating cash flows for machines, equipment and other investments over several years to compare alternatives and determine if they should be undertaken based on required rate of return.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 3

    IQRA University

    Principles of Finance
    Assignment

    Capital Budgeting

    Note: Submit handwritten assignment & upload on Blackboard

    1. Assume a $250,000 investment and the following cash flows for two products:

    Which alternatives would you select under the payback method?

    2. Assume a $90,000 investment and the following cash flows for two alternatives:

    a. Calculate the payback for investments A and B.

    b. If the inflow in the fifth year for Investment A was $25,000,000 instead of $25,000, would your
    answer change under the payback method?

    3. The Short-Line Railroad is considering a $140,000 investment in either of two companies. The
    cash flows are as follows:

    a. Using the payback method, what will the decision be?


    b. Explain why the answer in part a can be misleading.

    [Page 1 of 3]
    IQRA University
    Principles of Finance
    4. X-treme Vitamin Company is considering two investments, both of which cost $10,000. The cash
    flows are as follows:

    a. Which of the two projects should be chosen based on the payback method?
    b. Which of the two projects should be chosen based on the net present value method? Assume a
    cost of capital of 10 percent.
    c. Should a firm normally have more confidence in answer a or answer b?

    5. King's Department Store is contemplating the purchase of a new machine at a cost of $22,802.
    The machine will provide $3,500 per year in cash flow for nine years. King's has a cost of
    capital of 10 percent. Using the internal rate of return method, evaluate this project and
    indicate whether it should be undertaken.

    6. Home Security Systems is analyzing the purchase of manufacturing equipment that will cost
    $50,000. The annual cash inflows for the next three years will be:

    a. Determine the internal rate of return.

    b. With a cost of capital of 18 percent, should the machine be purchased?

    7. Aerospace Dynamics will invest $110,000 in a project that will produce the following cash
    flows. The cost of capital is 11 percent. Should the project be undertaken? (Note that the fourth
    year's cash flow is negative.)

    [Page 2 of 3]
    IQRA University
    Principles of Finance
    8. The Hudson Corporation makes an investment of $24,000 that provides the following cash flow:

    a. What is the net present value at an 8 percent discount rate?

    b. What is the internal rate of return?

    c. In this problem, would you make the same decision under both parts a and b?

    9. You are asked to evaluate the following two projects for the Norton Corporation. Using the
    net present value method combined with the profitability index approach described in footnote 2 of
    this chapter, which project would you select? Use a discount rate of 14 percent.

    10. Davis Chili Company is considering an investment of $35,000, which produces the following
    inflows:

    You are going to use the net present value profile to approximate the value for the internal rate of
    return. Please follow these steps:

    a. Determine the net present value of the project based on a zero discount rate.

    b. Determine the net present value of the project based on a 10 percent discount rate.

    c. Determine the net present value of the project based on a 15 percent discount rate (it will be
    negative).

    [Page 3 of 3]

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