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Consider the following list of projects: Project Investment NPV A 135,000 6,000 B

Consider the following list of projects: Project Investment NPV A 135,000 6,000 B

Consider the following list of projects:

Project

Investment

NPV

A

135,000

6,000

B

200,000

30,000

C

125,000

20,000

D

150,000

2,000

E

175,000

10,000

F

75,000

10,000

G

80,000

9,000

H

200,000

20,000

I

50,000

4,000

2. Assuming that your capital is constrained, so that you only have $600,000 available to invest in projects, which projects should you invest in and in what order?

a. CBFH

b. CBGF

c. BCFG

d. CBFG

Multiple choice:

3. Which of the following statements is FALSE?

a. Because value is lost when a resource is used by another project, we should include the opportunity cost as an incremental cost of the project.

b. Sunk costs are incremental with respect to the current decision regarding the project and should be included in its analysis.

c. Overhead expenses are associated with activities that are not directly attributable to a single business activity but instead affect many different areas of the corporation.

d. When computing the incremental earnings of an investment decision, we should include all changes between the firm's earnings with the project versus without the project.

4. Which of the following statements is FALSE?

a. Many projects use a resource that the company already owns.

b. When evaluating a capital budgeting decision, we generally include interest expense.

c. Only include as incremental expenses in your capital budgeting analysis the additional overhead expenses that arise because of the decision to take on the project.

d. As a practical matter, to derive the forecasted cash flows of a project, financial managers often begin by forecasting earnings.

5. Which of the following cash flows are relevant incremental cash flows for a project that you are currently considering investing in?

a. The tax savings brought about by the project's depreciation expense

b. The cost of a marketing survey you conducted to determine demand for the proposed project

c. Interest payments on debt used to finance the project

d. Research and Development expenditures you have made

6. An exploration of the effect on NPV of changing multiple project parameters is called:

a. scenario analysis.

b. IRR analysis.

c. accounting break-even analysis.

d. sensitivity analysis.

Thanks!!

Abhinav 03-Dec-2019

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