Question

A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows:

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Project M	-$24,000	$8,000	$8,000	$8,000	$8,000	$8,000
Project N	-$72,000	$22,400	$22,400	$22,400	$22,400	$22,400

1. Assuming the projects are independent, which one(s) would you recommend?

   -Select-Only Project M would be accepted because NPV(M) > NPV(N).Only Project N would be accepted because NPV(N) > NPV(M).Both projects would be accepted since both of their NPV's are positive.Only Project M would be accepted because IRR(M) > IRR(N).Both projects would be rejected since both of their NPV's are negative.Item 11

2. If the projects are mutually exclusive, which would you recommend?

   -Select-If the projects are mutually exclusive, the project with the highest positive NPV is chosen. Accept Project N.If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project M.If the projects are mutually exclusive, the project with the highest positive MIRR is chosen. Accept Project M.If the projects are mutually exclusive, the project with the shortest Payback Period is chosen. Accept Project M.If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project N.Item 12

3. Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR?

   -Select-The conflict between NPV and IRR is due to the fact that the cash flows are in the form of an annuity.The conflict between NPV and IRR is due to the difference in the timing of the cash flows.There is no conflict between NPV and IRR.The conflict between NPV and IRR occurs due to the difference in the size of the projects.The conflict between NPV and IRR is due to the relatively high discount rate.Item 13

Answer 1

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projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins File Home Insert Page Layout Formulas - 2x % Cut Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select CS N р Calibri E Copy Paste Format Painter B I Clipboard CR154 - CI CK 140 141 142 143 144 145 146 147 148 149 150 11 AA = = = pt Wrap Text General U B- A SF Merge Merge & Center - Center $ -% % 4:0 .00 8. Conditional Format Cell Insert Delete Format Formatting as Table Styles Font Alignment Number Styles Cells fax CL CM CN со CP СР CQ со CR PROJECT PV FACTOR AT 14% PV OF CFAT (M) PV OF CFAT (N) YEAR M M*P N*P -24000 -72000 1 -24000.00 -72000.00 8000 22400 0.8772 7017.54 19649.12 8000 22400 0.7695 6155.74 17236.07 8000 22400 0.6750 5399.77 15119.36 8000 22400 0.5921 4736.64 13262.60 22400 0.5194 4154.95 11633.86 NPV 3464.65 4901.01 PROJECT M PROJECT N NPV 3464.65 4901.01 IRR 19.86% 16.80% <--------------- EXCEL = IRR(CN142:CN147) PAYBACK PERIOD 3.21 [INVESTMENT/ANNUAL CF] [24000/8000] [72000/22400] 3 4 8000 151 152 153 154 155 156 157 158 159 IF PROJECTS ARE INDEPENDENT Both projects would be accepted since both of their NPV's are positive. IF PROJECTS ARE MUTUALLY EXCLUSIVE -If the projects are mutually exclusive, the project with the highest positive NPV is chosen. Accept Project N The conflict between NPV and IRR occurs due to the difference in the size of the projects MI-np-ir. REPLACEMENTS HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND OPTION TO WAITSTEIN indiffEPS EBIT LEASE STRAIGHT LINE GI ferences: P306 BOJ 120% 0- DO 4 * 4 0 ENG : N Red 0 08:25 20-11-2019