Freight is evaluating a proposed capital budgeting mission (mission Lima) that may require an preliminary funding of $800,000.Freight has been basing capital budgeting choices on a projectâs NPV; nevertheless, its new CEO needs to begin utilizing the IRR methodology for capital budgeting choices. The CFO says that the IRR is a greater methodology as a result of returns in share kind are simpler to know and examine to required returns. Fright WACC is eight%, and mission Lima has the identical threat because the firmâs common mission.The mission is anticipated to generate the next web money flows:YearCash Flow1 $350,0002 $475,0003 $425,0004 $500,0001. Which of the next is the right calculation of mission Lima IRR?a. 32.47%b. 36.29%c. 38.20%d. 34.38%2. If that is an unbiased mission, the IRR methodology states that the agency shoulda. Settle for Challenge Limab. Reject Challenge Lima3. If mutually unique initiatives are proposed that each have an IRR larger than the mandatory WACC, the IRR methodology states that the agency ought to settle for:a. The mission with the best IRR, assuming that each initiatives have the identical threat because the firmâs common projectb. The mission with the larger future money inflows, assuming that each initiatives have the identical threat because the firmâs common projectc. The mission that requires the bottom preliminary funding, assuming that each initiatives have the identical threat because the firmâs common mission.d. Crane Co is analyzing the mission that requires an preliminary funding of $three,225,000.The projectsâs anticipated money flows are:YearCash Flow1 $375,0002 -125,0003 $500,0004 $400,0004. Crane WACC is eight%, and the mission has the identical threat because the firmâs common mission. Calculate this projectâs modified inside charge of return (MIRR).a. -19.31%b. 16.99%c. 15.10%d. 17.94%5. If Crane managers choose initiatives primarily based on the MIRR criterion, they need to _____ this unbiased mission.a. Acceptb. Reject Suppose you might be evaluating a mission with the money inflows proven within the following desk. Your boss has requested you to calculate the projectâs NPV. You donât know the projectâs preliminary value, however you do know th projectâs common payback interval is 2.5 years.12 months Money Flow1 $375,0002 $500,0003 $425,0004 $500,0006. If the projectâs WACC is 7%, the projectâs NPV is which of the followinga. $428,061b. $385,255c. $470,867d. $513,6737. Which of the next statements point out a drawback of utilizing the common payback interval (not the discounted payback interval) for capital budgeting choices? Test all that applya. The payback interval doesn’t take the projectâs complete life into accountb. The payback interval doesn’t take the time worth of cash into accountc. The payback interval is calculated utilizing web earnings as an alternative of money flows.eight. Firms typically use a number of strategies to guage the projectâs money flows and every of them has its advantages and downsides. Primarily based in your understanding of the capital budgeting analysis strategies, which of the next conclusions about capital budgeting are legitimate? Test all that apply.a. Managers have been sluggish to adapt the IRR, as a result of share returns are a more durable idea for them to know.b. The NPV reveals how a lot worth the corporate is creating for its shareholders.c. For many corporations, the reinvestment charge assumption within the MIRR is extra practical than the belief within the IRR.
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