Including the real option into your capital budgeting analysis will tend to a) Increase the NPV...
|
Including the real option into your capital budgeting analysis will tend to |
a) Increase the NPV of a project
b) Decrease the NPV of a project
c) Extend the duration of a project but not affect the project's
NPV
d) Have no effect on either a project's cash flows or its NPV
Homework Answers
Real options tend to increase the value or NPV of the project as a firm would not logically exercise an option that lowers the value. When the project is without any options, it depresses the value of the project.
Answer is a) Increase the NPV of a project
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Including the real option into your capital budgeting analysis
will tend to
a) Increase the NPV...
29. Including the option to expand in your project analysis will tend to: (a) (b) (C)...
29. Including the option to expand in your project analysis will tend to: (a) (b) (C) (d) extend the duration of a project but not affect the project's net present value increase the cash flows of a project but decrease the project's net present value increase the net present value of a project decrease the net present value of a project
DCF analysis doesn't always lead to proper capital budgeting decisions because capital budgeting projects are not-Select-investments...
DCF analysis doesn't always lead to proper capital budgeting decisions because capital budgeting projects are not-Select-investments like stocks and bonds. Managers can often take positive actions after the investment has been made to alter a project's cash flows. These opportunities are real options that offer the right but not the obligation to take some future action. Types of real options include abandonment, investment timing, expansion, output flexibility, and input flexibility. The existence of options can -Select projects' expected profitability,-Select their...
Which of the following methods will provide a correct analysis for capital budgeting purposes? discounting real...
Which of the following methods will provide a correct analysis for capital budgeting purposes? discounting real cash flows with real rates. discounting real cash flows with nominal rates. Odiscounting nominal cash flows with real rates. all of the above methods will provide similar results A project's Profitability Index is.85 and its net present value of $250,000. Given this information, determine the cost of the project. $135,135 $212,500 $250,000 $294,118
h 11: Assignment - The Basics of Capital Budgeting 1. Net present value (NPV) Evaluating cash...
h 11: Assignment - The Basics of Capital Budgeting 1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Happy Dog Soap Company is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $2,225,000. The project is expected to generate the following net cash flows:...
In computing the NPV of a capital budgeting project, one should NOT: Select one: A. estimate...
In computing the NPV of a capital budgeting project, one should NOT: Select one: A. estimate the cost of the project. B. discount the future cash flows over the project's expected life. C. ignore the salvage value. D. make a decision based on the project's NPV.
When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net...
When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: O Changes in net working capital associated with the project The project's financing costs The project's depreciation expense The project's fixed-asset expenditures Indirect cash flows often affect a firm's capital budgeting decisions. However, some of these indirect cash flows are...
Ch 11: Assignment - The Basics of Capital Budgeting The net present value (NPV) and internal...
Ch 11: Assignment - The Basics of Capital Budgeting The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Blue Hamster Manufacturing Inc.: Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers that the internal rate of return (IRR) of...
When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net...
When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: The project's financing costs The project's depreciation expense Changes in net working capital associated with the project The project's fixed-asset expenditures O Indirect cash flows often affect a firm's capital budgeting decisions. However, some of these indirect cash flows are...
You just finished a capital budgeting investment analysis on a $198 million project. The project's life...
You just finished a capital budgeting investment analysis on a $198 million project. The project's life is 12 years and it will generate equal annual after-tax cash operating cash flows of $33.05 million. You assumed a $55 million salvage value, but the projecť's adjusted tax basis at termination will be $66 million. The project would have no effect on net working capital. With a 22% marginal tax rate, the resulting NPV is $41.628 million. What cost of capital did you...
3. Identifying incremental cash flows Aa Aa E When firms make capital budgeting decisions, they should...
3. Identifying incremental cash flows Aa Aa E When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: The project's fixed-asset expenditures Changes in net working capital associated with the project The project's depreciation expense The project's financing costs Indirect cash flows often affect a firm's capital budgeting decisions. However,...
29. Including the option to expand in your project analysis will tend to: (a) (b) (C) (d) extend the duration of a project but not affect the project's net present value increase the cash flows of a project but decrease the project's net present value increase the net present value of a project decrease the net present value of a project
DCF analysis doesn't always lead to proper capital budgeting decisions because capital budgeting projects are not-Select-investments like stocks and bonds. Managers can often take positive actions after the investment has been made to alter a project's cash flows. These opportunities are real options that offer the right but not the obligation to take some future action. Types of real options include abandonment, investment timing, expansion, output flexibility, and input flexibility. The existence of options can -Select projects' expected profitability,-Select their...
Which of the following methods will provide a correct analysis for capital budgeting purposes? discounting real cash flows with real rates. discounting real cash flows with nominal rates. Odiscounting nominal cash flows with real rates. all of the above methods will provide similar results A project's Profitability Index is.85 and its net present value of $250,000. Given this information, determine the cost of the project. $135,135 $212,500 $250,000 $294,118
h 11: Assignment - The Basics of Capital Budgeting 1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Happy Dog Soap Company is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $2,225,000. The project is expected to generate the following net cash flows:...
When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: O Changes in net working capital associated with the project The project's financing costs The project's depreciation expense The project's fixed-asset expenditures Indirect cash flows often affect a firm's capital budgeting decisions. However, some of these indirect cash flows are...
Ch 11: Assignment - The Basics of Capital Budgeting The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Blue Hamster Manufacturing Inc.: Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers that the internal rate of return (IRR) of...
When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: The project's financing costs The project's depreciation expense Changes in net working capital associated with the project The project's fixed-asset expenditures O Indirect cash flows often affect a firm's capital budgeting decisions. However, some of these indirect cash flows are...
You just finished a capital budgeting investment analysis on a $198 million project. The project's life is 12 years and it will generate equal annual after-tax cash operating cash flows of $33.05 million. You assumed a $55 million salvage value, but the projecť's adjusted tax basis at termination will be $66 million. The project would have no effect on net working capital. With a 22% marginal tax rate, the resulting NPV is $41.628 million. What cost of capital did you...
3. Identifying incremental cash flows Aa Aa E When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: The project's fixed-asset expenditures Changes in net working capital associated with the project The project's depreciation expense The project's financing costs Indirect cash flows often affect a firm's capital budgeting decisions. However,...
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