16. Which of the following statements about capital budgeting is correct? A. The timing of cash flows is irrelevant in capital budgeting B. A company should use the same discount rate for all of its projects regardless of their risk C. Interest expense on an outstanding loan is a relevant cost for capital budgeting D. Proceeds forgone because a company used a building in a new project, rather than selling the building, is a relevant cost for capital budgeting 17. A financial analyst in Pitt's Sock Company prepared a capital budgeting analysis. The analyst calculated an NPV of $150,000 for the project. You just realized that the initial cash flow related to buying new equipment had a typo. The analysis was based on a purchase price of $10,000; however, the actual cost should have been $100,000. Which of the following is correct? A. If the analysis were rerun with the correct initial purchase price, the NPV would be a negative number B. If the analysis were rerun with the correct initial purchase price, the NPV would be $60,000 C If the analysis were rerun with the correct initial purchase price, the NPV would be $240,000 D. The impact on NPV cannot be calculated with the information above 18. What is the NPV of the following cash flows? The company uses an 11% discount rate. ($168,000) $25,000 Initial Cash Flow Year 1 Cash Flow $25,000 $25,000 Year 2 Cash Flow Year 3 Cash Flow Year 4 Cash Flow $0 Year 5 Cash Flow $75,000 Year 6 Cash Flow $75,000 Year 7 Cash Flow $80,000 Year 8 Cash Flow $80,000 $90,000 $100,000 Year 9 Cash Flow Year 10 Cash Flow A. $121,348.25 B. $146,456.34 C. $109,322.75 D. $131,942.65 12
16. Which of the following statements about capital budgeting is correct? A. The timing of cash flows is irrelevant in capital budgeting B. A company should use the same discount rate for all of its projects regardless of their risk C. Interest expense on an outstanding loan is a relevant cost for capital budgeting D. Proceeds forgone because a company used a building in a new project, rather than selling the building, is a relevant cost for capital budgeting 17. A financial analyst in Pitt's Sock Company prepared a capital budgeting analysis. The analyst calculated an NPV of $150,000 for the project. You just realized that the initial cash flow related to buying new equipment had a typo. The analysis was based on a purchase price of $10,000; however, the actual cost should have been $100,000. Which of the following is correct? A. If the analysis were rerun with the correct initial purchase price, the NPV would be a negative number B. If the analysis were rerun with the correct initial purchase price, the NPV would be $60,000 C If the analysis were rerun with the correct initial purchase price, the NPV would be $240,000 D. The impact on NPV cannot be calculated with the information above 18. What is the NPV of the following cash flows? The company uses an 11% discount rate. ($168,000) $25,000 Initial Cash Flow Year 1 Cash Flow $25,000 $25,000 Year 2 Cash Flow Year 3 Cash Flow Year 4 Cash Flow $0 Year 5 Cash Flow $75,000 Year 6 Cash Flow $75,000 Year 7 Cash Flow $80,000 Year 8 Cash Flow $80,000 $90,000 $100,000 Year 9 Cash Flow Year 10 Cash Flow A. $121,348.25 B. $146,456.34 C. $109,322.75 D. $131,942.65 12
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:16. Which of the following statements about capital budgeting is correct?
A. The timing of cash flows is irrelevant in capital budgeting
B. A company should use the same discount rate for all of its projects regardless of their risk
C. Interest expense on an outstanding loan is a relevant cost for capital budgeting
D. Proceeds forgone because a company used a building in a new project, rather than selling the
building, is a relevant cost for capital budgeting
17. A financial analyst in Pitt's Sock Company prepared a capital budgeting analysis. The analyst
calculated an NPV of $150,000 for the project. You just realized that the initial cash flow related to
buying new equipment had a typo. The analysis was based on a purchase price of $10,000; however,
the actual cost should have been $100,000. Which of the following is correct?
A. If the analysis were rerun with the correct initial purchase price, the NPV would be a negative
number
B. If the analysis were rerun with the correct initial purchase price, the NPV would be $60,000
C If the analysis were rerun with the correct initial purchase price, the NPV would be $240,000
D. The impact on NPV cannot be calculated with the information above
18. What is the NPV of the following cash flows? The company uses an 11% discount rate.
($168,000)
$25,000
Initial Cash Flow
Year 1 Cash Flow
$25,000
$25,000
Year 2 Cash Flow
Year 3 Cash Flow
Year 4 Cash Flow
$0
Year 5 Cash Flow
$75,000
Year 6 Cash Flow
$75,000
Year 7 Cash Flow
$80,000
Year 8 Cash Flow
$80,000
$90,000
$100,000
Year 9 Cash Flow
Year 10 Cash Flow
A. $121,348.25
B. $146,456.34
C. $109,322.75
D. $131,942.65
12
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