Consider the following information: Cash Flows ($) Project C0 C1 C2 C3 C4 A –5,300 1,300 1,300 2,700 0 B –700 0 600 2,300 3,300 C –5,200 3,400 1,700 800 300 a. What is the payback period on each of the above projects? (Round your answers to 2 decimal places.) b. Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept? multiple choice 1 Project A Project B and Project C Project A and Project B Project A, Project B, and Project C Project C Project A and Project C Project B None c. If you use a cutoff period of three years, which projects would you accept? multiple choice 2 Project A, Project B, and Project C Project A Project B Project A and Project C Project C Project A and Project B Project B and Project C d. If the opportunity cost of capital is 10%, which projects have positive NPVs? multiple choice 3 Project B Project C Project A, Project B, and Project C Project B and Project C Project A and Project C Project A Project A and Project B e. “If a firm uses a single cutoff period for all projects, it is likely to accept too many shortlived projects.” True or false? multiple choice 4 True False f-1. If the firm uses the discounted-payback rule, will it accept any negative-NPV projects? multiple choice 5 Yes No f-2. Will it turn down any positive-NPV projects? multiple choice 6 Yes No
Consider the following information: Cash Flows ($) Project C0 C1 C2 C3 C4 A –5,300 1,300 1,300 2,700 0 B –700 0 600 2,300 3,300 C –5,200 3,400 1,700 800 300 a. What is the payback period on each of the above projects? (Round your answers to 2 decimal places.) b. Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept? multiple choice 1 Project A Project B and Project C Project A and Project B Project A, Project B, and Project C Project C Project A and Project C Project B None c. If you use a cutoff period of three years, which projects would you accept? multiple choice 2 Project A, Project B, and Project C Project A Project B Project A and Project C Project C Project A and Project B Project B and Project C d. If the opportunity cost of capital is 10%, which projects have positive NPVs? multiple choice 3 Project B Project C Project A, Project B, and Project C Project B and Project C Project A and Project C Project A Project A and Project B e. “If a firm uses a single cutoff period for all projects, it is likely to accept too many shortlived projects.” True or false? multiple choice 4 True False f-1. If the firm uses the discounted-payback rule, will it accept any negative-NPV projects? multiple choice 5 Yes No f-2. Will it turn down any positive-NPV projects? multiple choice 6 Yes No
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Concept explainers
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Question
Consider the following information:
| Cash Flows ($) | |||||
| Project | C0 | C1 | C2 | C3 | C4 |
| A | –5,300 | 1,300 | 1,300 | 2,700 | 0 |
| B | –700 | 0 | 600 | 2,300 | 3,300 |
| C | –5,200 | 3,400 | 1,700 | 800 | 300 |
|
|
a. What is the payback period on each of the above projects? (Round your answers to 2 decimal places.)
b. Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept?
multiple choice 1
-
Project A
-
Project B and Project C
-
Project A and Project B
-
Project A, Project B, and Project C
-
Project C
-
Project A and Project C
-
Project B
-
None
c. If you use a cutoff period of three years, which projects would you accept?
multiple choice 2
-
Project A, Project B, and Project C
-
Project A
-
Project B
-
Project A and Project C
-
Project C
-
Project A and Project B
-
Project B and Project C
d. If the
multiple choice 3
-
Project B
-
Project C
-
Project A, Project B, and Project C
-
Project B and Project C
-
Project A and Project C
-
Project A
-
Project A and Project B
e. “If a firm uses a single cutoff period for all projects, it is likely to accept too many shortlived projects.” True or false?
multiple choice 4
-
True
-
False
f-1. If the firm uses the discounted-payback rule, will it accept any negative-
multiple choice 5
-
Yes
-
No
f-2. Will it turn down any positive-NPV projects?
multiple choice 6
-
Yes
-
No
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