11) CAPITAL BUDGETING. If an investment\'s IRR is 15% and its profitability inde

Question

11) CAPITAL BUDGETING. If an investment's IRR is 15% and its profitability index is 1.85, its required rate of return

A) must be less than 15%

C) must be equal to 15%

D) can be greater then or less than 15%

12) CF Estimation. In which of the following situations would a firm's net cash flow from a capital project be affected?

A) A firm spent $5,000 in the previous year in a training program for a group of six engineers who will operate a highly computerized production machinery now being evaluated

C) A new high tech manufacturing equipment will replace an existing one. The annual insurance premium on the existing equipment is $1,000. The replacement equipment would also require an annual insurance cost of $1,000

D) None of the above cash flows would be considered an incremental net cash flow in capital budgeting

15) CASH FLOW ESTIMATION. Which of the following items is NOT part of the initial cash flow in capital budgeting? [i] Change in depreciation [ii] Additional working capital requirement [iii] Shipping and installation costs [iv] Project modification costs [v] Cost incurred previously but which relates to the capital project at hand

A) i and iii

C) iii and v

D) i and v

Explanation / Answer

11.

A) must be less than 15%

12.

D) i and v

D) None of the above cash flows would be considered an incremental net cash flow in capital budgeting

15.

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