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Fuzzy Button Clothing Company is analyzing a project that requires an initial investment of $2,500,000. The projects expected cash flows are: Year Cash Flo Year 1 $350,000 Year 2 -175,000 Year 3 400,000 Year 4 425,000 Fuzzy Button Clothing Companys WACC is 7%, and the project has the same risk as the firms average project. Calculate this projects modified internal rate of return (MIRR). О О О O 19.71% 18.68% 16.60% -16.63% If Fuzzy Button Clothing Companys managers select projects based on the MIRR criterion, they should this independent project. A typical firms IRR will be equal to its MIRR. O A typical firms IRR will be less than its MIRR. O A typical firms IRR will be greater than its MIRR.An NPV profile plots a projects NPV at various costs of capital. A projects NPV profile is shown as follows. Identify the range of costs of capital that a firm would use to accept and reject this project. NPV (Dollars 400 300 200 100 100 200 0 2 468 10 12 14 16 18 20 COST OF CAPITAL (Percent) True or False: The NPV and IRR methods can lead to conflicting decisions for mutually exclusive projects O True O FalseWhat information does the payback period provide? Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the projects net present value (NPV). You dont know the projects initial cost, but you do know the projects regular, or conventional, payback period is 2.50 years. If the projects ~WACC~ is 9%, the projects NPV (rounded to the nearest dollar) is: Year Cash Flo Year 1 $325,000 Year 2 $425,000 Year 3 $500,000 Year 4 $425,000 O $411,662 O $343,052 $291,594 O $377,357 Which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital budgeting decisions? Check all that apply. The payback period does not take the projects entire life into account. The payback period is calculated using net income instead of cash flows. The payback period does not take the time value of money into account.

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Home nert Page Layout Formulas Data Review View dd-Ins s Cut ta copy. Σ AutoSum ー E ゴWrap Text в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 C Conditional Format CeInsert Delete Format Formatting, as Table w styles. ▼ ㆆ ▼ Sort &Find & 2 ClearFe Select Edting Format Painter Clipboard RV116 RO Alignment Number Cells RP RS RT RU RV RW RX RY RZ SA SB 114 115 116 YEAR CF 0 2500000 350000 -175000 400000 425000 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 (4 トト1 | IRRnpv , RATION PBP ARR . external rate 4 MIRR 16.63% MIRA(RQ116:RQ120,7%,7%) CORRECT STATEMENT A TYPICAL FIRMS IRR WILL BE GREATER THAN ITS MIRR RANGE OF COST OF CAPITAL IF COST OF CAPITAL IS LESS THAN 12 % : ACCEPT THE PROJECT IF COST OF CAPITAL IS MORE THAN 12 % : REJECT THE PROJECT NPV & IRR LEAD TO CONFLICTING DECISIONS WHEN PROJECT ARE MUTUALLY EXCLUSIVE TRUE MIRR NpV IRR , REPLACEMENT S / HPR GMAM , EAC MACRS RATIOCASHBUDGET wacc BOND EPS EBIT- REPLACEMENT- STats- erences: E147 福 130% 14-01-2019Home nert Page Layout Formulas Data Review View dd-Ins Cut copy ▼ Format Painter Σ AutoSum ー E ゴWrap Text B า 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format CeInsert Delete Format Formatting▼ as Table* Styles Sort &Find & 2 ClearFe Select Edting Clipboard RX149 RO Alignment Number Cells RS RT RU RV RW RX RY RZ SB 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 YEAR CF 325000 425000 500000 425000 PAYBACK PERIOD 2.5 YEARS THEREFORE INVESTMENT 325000+425000(500000/2) THEREFORE INVESTMENT = 1000000 4 YEAR 0 1000000 325000 425000 500000 425000 $ 3,43,052 4 NPV [ NPV(996,RQl43:RQ146) +RQ142] DISADVANTAGES SECOND& THIRD DOES NOT TAKE INTO ACCOUNT ENTIRE LIFE INTO ACCOUNT DOES NOT TAKE TIME VALUE OF MONEY INTO ACCOUNT /4 제 トト1 | IRRnpv , RATION PBP ARR . external rate MIRR NpV IRR , REPLACEMENT S / HPR GMAM , EAC MACRS RATIOCASHBUDGET acc BOND EPS EBIT- REPLACEMENT STats- erences: NI296 福 130% 03:58 14-01-2019

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