Question

b. Is it logical to assume that the firm would take on all available independent, average-risk projects with returns greater than 11%? -Select- If all available projects with returns greater than 11% have been undertaken, does this mean that cash flows from past investments have an opportunity cost of only 11%, because all the company can do with these cash flows is to replace money that has a cost of 11%? -Select- Does this imply that the WACC is the correct reinvestment rate assumption for a project's cash flows? -Select-

Answer 1

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projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins E AutoSum - Cut AC Wrap Text Calibri 11 General Copy Fill Merge & Center Insert Delete Format Paste в IU* +.0 .00 Conditional Format Cell Sort & Find & % .00 0 Format Painter Clear Filter Select Formatting as Table Styles Number Editing Clipboard Font Alignment Styles Cells fox LP306 LUJ LK LL LM LN LO LP LQ LR LS LT LU LV PLAN B 289 YEAR PLAN A [=NPV(LP293,$LL$291) $LL$290] (a) NPV PROFILE 290 0 -11.4 -11.4 291 13.68 DISCOUNT 1 2.0257 NPV 2.0257 292 2 0 RATE PLAN A PLAN B [-NPV(LP293,$LM$291:$LM$310) +$LM$290] $2.28 $29.11 2.0257 293 3 0% $1.63 $13.84 294 4 2.0257 5% $1.04 $5.85 2.0257 295 5 0 10% $ 3.73 $0.81 2.0257 296 6 0 12% $0.50 $1.28 297 7 0 2.0257 15% $0.29 $0.00 17% 298 8. 0 2.0257 299 0.00 $-1.54 0 2.0257 20% 300 10 0 2.0257 IRR 301 11 0 2.0257 2.0257 302 12 0 PLAN A 20% SEE ABOVE NPV PROFILE 303 13 0 2.0257 PLAN B 17% SEE ABOVE NPV PROFILE 304 14 0 2.0257 305 15 0 2.0257 306 2.0257 16 0 2.0257 307 17 0 308 18 0 2.0257 309 19 0 2.0257 310 20 2.0257 311 IRRnpvbeta NPV RELEVANT STEIN in RATION PBP ARR invest, EAA MI-np-ir REPLACEMENTS HPR GMAM EAC MACRS BETA LEVERED REPLACEMENT BOND OPTION TO WAIT Rea erences: NL296 110% WA 03:02 ENG 01-12-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins E AutoSum - Cut AS Wrap Text Calibri 11 General Copy Fill в IU* Merge & Center Paste $ %, +.0 .00 .00 0 Conditional Format Cell Insert Delete Format Sort & Find & Format Painter Clear Filter Select Formatting as Table Styles Number Clipboard Font Alignment Styles Cells Editing fox LQ327 LI LK LL LM LN LO LP LQ LR LS LT LU INCREMENTAL CFAT (PLAN B -PLAN A) PLAN A 313 YEAR PLAN B 314 0 -11.4 -11.4 0 315 1 13.68 2.0257 -11.6543 crossover rate 316 2. 2,0257 2.0257 IRR 16.41% 2.0257 317 0 2.0257 EIRR(LN314:LN334)] 2.0257 318 4 2.0257 2.0257 319 5 0 2.0257 2.0257 320 6 0 2.0257 2.0257 2.0257 321 7 0 2.0257 322 8 0 2.0257 2.0257 323 9 0 2.0257 324 10 0 2.0257 2.0257 2.0257 2.0257 325 11 2.0257 2.0257 326 12 0 327 13 0 2.0257 2,0257 2.0257 328 14 0 2,0257 329 2.0257 15 0 2.0257 2.0257 2.0257 330 16 0 2,0257 331 17 2.0257 332 18 0 2.0257 2.0257 2.0257 333 19 0 2.0257 334 20 0 2.0257 2.0257 IRRnpvbeta erences: SM219 STEIN iT invest, EAA RELEVANT MI-пр-ir NPV RATION PBP ARR REPLACEMENT S HPR GMAM EAC MACRS BETA LEVERED REPLACEMENT BOND OPTION TO WAIT III E 110% Rea WA 03:03 ENG 01-12-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins Σ AutoSum - Cut AS Wrap Text Calibri 11 General Copy Fill B IU Merge & Center Insert Delete Format Paste +.0 .00 .00 0 Conditional Format Cell Sort & Find & % Format Painter Clear Filter Select Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing LO350 LQ LI LK LL LM LN LO LP LR LS LT 335 336 337 338 fill in the blanks 339 340 FIRM WOULD TAKE ALL PROJECTS WITH RETURN GREATER THAN 11% 341 YES 342 343 YES TRUE 344 YES TRUE 345 346 347 348 349 350 351 352 353 354 355 NPV RELEVANT STEIN i invest, EAA IRRnpybeta MI-пр-ir RATION PBP ARR REPLACEMENTS HPR GMAM EAC MACRS BETA LEVERED REPLACEMENT BOND OPTION TO WAIT Rea (- erences: E147 120% WA 03:04 ENG 01-12-2019