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CAPITAL BUDGETING CRITERIA A firm with a 13% WACC is evaluating two projects for this year's capital...

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Finance

CAPITAL BUDGETING CRITERIA

A firm with a 13% WACC is evaluating two projects for thisyear's capital budget. After-tax cash flows, includingdepreciation, are as follows:

012345
Project M-$12,000$4,000$4,000$4,000$4,000$4,000
Project N-$36,000$11,200$11,200$11,200$11,200$11,200

NPV for each project:
Project M    $ 2,068.93
Project N    $3,392.99

IRR for each project:
Project M 19.86%
Project N 16.80%

MIRR for each project:
Project M 16.65 %
Project N 15.05%

Calculate payback for each project. Round your answers to twodecimal places. Do not round your intermediate calculations.
Project M 3.00 years
Project N 3.21 years

Discounted payback for each project:
Project M 4.05years
Project N 4.04 years

  1. Assuming the projects are independent, which one(s) would yourecommend?
    -Select-Only Project M would be accepted because IRR(M) >IRR(N).Both projects would be rejected since both of their NPV'sare negative.Only Project M would be accepted because NPV(M) >NPV(N).Only Project N would be accepted because NPV(N) >NPV(M).Both projects would be accepted since both of their NPV'sare positive.Item 11
  2. If the projects are mutually exclusive, which would yourecommend?
    -Select-If the projects are mutually exclusive, the project withthe highest positive IRR is chosen. Accept Project N.If theprojects are mutually exclusive, the project with the highestpositive NPV is chosen. Accept Project N.If the projects aremutually exclusive, the project with the highest positive IRR ischosen. Accept Project M.If the projects are mutually exclusive,the project with the highest positive MIRR is chosen. AcceptProject M.If the projects are mutually exclusive, the project withthe shortest Payback Period is chosen. Accept Project M.Item12

  3. Notice that the projects have the same cash flow timing pattern.Why is there a conflict between NPV and IRR?
    -Select-There is no conflict between NPV and IRR.The conflictbetween NPV and IRR occurs due to the difference in the size of theprojects.The conflict between NPV and IRR is due to the relativelyhigh discount rate.The conflict between NPV and IRR is due to thefact that the cash flows are in the form of an annuity.The conflictbetween NPV and IRR is due to the difference in the timing of thecash flows.Item 13

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CAPITAL BUDGETING CRITERIAA firm with a 13% WACC is evaluating two projects for thisyear's capital budget. After-tax cash flows, includingdepreciation, are as follows:012345Project M-$12,000$4,000$4,000$4,000$4,000$4,000Project N-$36,000$11,200$11,200$11,200$11,200$11,200NPV for each project:Project M    $ 2,068.93Project N    $3,392.99IRR for each project:Project M 19.86%Project N 16.80%MIRR for each project:Project M 16.65 %Project N 15.05%Calculate payback for each project. Round your answers to twodecimal places. Do not round your intermediate calculations.Project M 3.00 yearsProject N 3.21 yearsDiscounted payback for each project:Project M 4.05yearsProject N 4.04 yearsAssuming the projects are independent, which one(s) would yourecommend?-Select-Only Project M would be accepted because IRR(M) >IRR(N).Both projects would be rejected since both of their NPV'sare negative.Only Project M would be accepted because NPV(M) >NPV(N).Only Project N would be accepted because NPV(N) >NPV(M).Both projects would be accepted since both of their NPV'sare positive.Item 11If the projects are mutually exclusive, which would yourecommend?-Select-If the projects are mutually exclusive, the project withthe highest positive IRR is chosen. Accept Project N.If theprojects are mutually exclusive, the project with the highestpositive NPV is chosen. Accept Project N.If the projects aremutually exclusive, the project with the highest positive IRR ischosen. Accept Project M.If the projects are mutually exclusive,the project with the highest positive MIRR is chosen. AcceptProject M.If the projects are mutually exclusive, the project withthe shortest Payback Period is chosen. Accept Project M.Item12Notice that the projects have the same cash flow timing pattern.Why is there a conflict between NPV and IRR?-Select-There is no conflict between NPV and IRR.The conflictbetween NPV and IRR occurs due to the difference in the size of theprojects.The conflict between NPV and IRR is due to the relativelyhigh discount rate.The conflict between NPV and IRR is due to thefact that the cash flows are in the form of an annuity.The conflictbetween NPV and IRR is due to the difference in the timing of thecash flows.Item 13

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