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- If a company has an option to abandon a project, would this tend to make the company more or less likely to accept the project today?If a company has an option to abandon a project, would this tend to makethe company more or less likely to accept the project today?1) What is the company's WACC? 2) Should the company take the projects? Assume that the projects have the same risk as an average project for your firm. 3) If one project is depended on the other in a way that the company can only take both projects, should it take it?
- what does it mean if the npv and irr are both negative quora, should the company invest in the project or not?Many firms still use the internal rate of return rule instead of net present value. When used properly, the two rules lead to the same decision, but the internal rate of return rule has several pitfalls that can trap the unwary.Explain with reasons, THREE (3) pitfalls of using the internal rate of return rule in appraising capital investment.Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,600,000. Blue Llama Mining Company has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because percentages and returns are easier to understand and to compare to required returns. Blue Llama Mining Company's WACC is 7%, and project Delta has the same risk as the firm's average project. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $375,000 Year 2 $500,000 Year 3 $450,000 Year 4 $475,000 Which of the following is the correct calculation of project Delta's IRR? 4.98% 4.27% 5.45% 4.74%
- ABC Company funds its new investment project with only internal financing (NO external financing). Should this investment assess at a risk-free rate? Explain Please.What logical arguments might you use to convince your boss to forego the project despite its high rate of return? Is it possible that making investments with expected returns higher than your company’s cost of capital will destroy value? If so, how?Suppose your firm could purchase another firm for only half of itsreplacement value. Would that be a sufficient justification for theacquisition? Why or why not?
- may force the firm to forgo positive NPV projects or to rely on costly external equity financing. A Moving to another question will save this response.What are the likely effects of a policy in which a company fails to adjust for difference in risk when estimating the cost of capital for their various projects?Which of the following is a disadvantage of the internal rate of return criterion? Select one: a. It is not a true rate of return. b. It uses an arbitrary benchmark cutoff rate. c. It ignores time value of money, cash flows, and market values. d. It cannot be used to rank independent projects. e. It may lead to incorrect decisions when comparing mutually exclusive investments.
