The most reliable capital budgeting technique

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Reference no: EM132033353

1. The most reliable capital budgeting technique that should be considered when comparing between mutually exclusive alternative investments is

A. Internal Rate of Return Method

B. Traditional Payback Period Method

C. Net Present Value Method

D. Modified IRR Method (IRR)

2. The MIRR is an improvement to the IRR in that it allows

A. For longer time period investment consideration.

B. More cash flows in the calculation.

C. For the re-investment at the firm's required rate of return, which eliminates the multiple IRR problem

3. Project A has an initial cash outflow at time zero equal to $300, and then cash inflows at the end of year one till the end of year five equal to $150.

Project B has an initial cash outflow at time zero equal to $200, and then cash inflows at the end of year one till the end of year six equal to $60.

If the required rate of return of the firm is 10%, and if projects A & B are mutually exclusive, which project/projects should the company choose?

A. Project A

B. Project B

C. Not enough information to judge

D. Both projects have the same added value

4. Project C requires a $450 initial investment at time zero, and promises $200 at the end of every year for 8 years.

Project D requires a $350 initial investment at time zero, and promises $130 at the end of every year for 9 years.

If the required rate of the firm is 30%, Using the IRR method, which project/projects should be chosen, given that both projects are independent

A. Decline both projects, because their IRR's are less than the required rate of return for the firm.

B. Project C, since it has the higher IRR

C. Accept both rojects, since both IRR's are greater than the required rate of return for the firm.

D. Project D, since it has the higher IRR

5. Project C requires a $450 initial investment at time zero, and promises $200 at the end of every year for 8 years.

Project D requires a $350 initial investment at time zero, and promises $130 at the end of every year for 9 years.

The traditional payback period for projects C and D respectively are:

A. Project C = 3.9 year ; Project D = 4.2 years

B. Project C = 3.5 year ; Project D = 3.75 years

C. Project C = 1.19 year ; Project D = 5.7 years

D. Project C = 2.25 year ; Project D = 2.69 years

Reference no: EM132033353

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