Posted: May 13th, 2018

ACCT 221 – Freight is evaluating a proposed capital budgeting project (project Lima)

Freight is evaluating a proposed capital budgeting mission (mission Lima) which will require an preliminary funding of $800,000.Freight has been basing capital budgeting selections on a project’s NPV; however, its new CEO wants to start using the IRR methodology for capital budgeting selections. The CFO says that the IRR is a higher methodology because of returns in share form are easier to know and look at to required returns. Fright WACC is eight%, and mission Lima has the equivalent menace as a result of the firm’s frequent mission.The mission is anticipated to generate the subsequent internet cash flows:YearCash Flow1 $350,0002 $475,0003 $425,0004 $500,0001. Which of the subsequent is the appropriate calculation of mission Lima IRR?a. 32.47%b. 36.29%c. 38.20%d. 34.38%2. If that’s an unbiased mission, the IRR methodology states that the company shoulda. Accept Problem Limab. Reject Problem Lima3. If mutually distinctive initiatives are proposed that every have an IRR bigger than the necessary WACC, the IRR methodology states that the company should accept:a. The mission with one of the best IRR, assuming that every initiatives have the equivalent menace as a result of the firm’s frequent projectb. The mission with the bigger future cash inflows, assuming that every initiatives have the equivalent menace as a result of the firm’s frequent projectc. The mission that requires the underside preliminary funding, assuming that every initiatives have the equivalent menace as a result of the firm’s frequent mission.d. Crane Co is analyzing the mission that requires an preliminary funding of $three,225,000.The projects’s anticipated cash flows are:YearCash Flow1 $375,0002 -125,0003 $500,0004 $400,0004. Crane WACC is eight%, and the mission has the equivalent menace as a result of the firm’s frequent mission. Calculate this project’s modified inside cost of return (MIRR).a. -19.31%b. 16.99%c. 15.10%d. 17.94%5. If Crane managers select initiatives based totally on the MIRR criterion, they should _____ this unbiased mission.a. Acceptb. Reject Suppose you is perhaps evaluating a mission with the cash inflows confirmed throughout the following desk. Your boss has requested you to calculate the project’s NPV. You don’t know the project’s preliminary worth, nonetheless you do know th project’s frequent payback interval is 2.5 years.12 months Cash Flow1 $375,0002 $500,0003 $425,0004 $500,0006. If the project’s WACC is 7%, the project’s NPV is which of the followinga. $428,061b. $385,255c. $470,867d. $513,6737. Which of the subsequent statements level out a disadvantage of using the frequent payback interval (not the discounted payback interval) for capital budgeting selections? Take a look at all that applya. The payback interval would not take the project’s full life into accountb. The payback interval would not take the time value of money into accountc. The payback interval is calculated using internet earnings as a substitute of cash flows.eight. Companies sometimes use a variety of methods to guage the project’s cash flows and each of them has its benefits and drawbacks. Based totally in your understanding of the capital budgeting evaluation methods, which of the subsequent conclusions about capital budgeting are legit? Take a look at all that apply.a. Managers have been sluggish to adapt the IRR, because of share returns are a extra sturdy concept for them to know.b. The NPV reveals how so much well worth the company is creating for its shareholders.c. For a lot of firms, the reinvestment cost assumption throughout the MIRR is further sensible than the assumption throughout the IRR.

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