Intermediate Financial Management (MindTap Course List)
12th Edition
ISBN: 9781285850030
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 12, Problem 5Q
Summary Introduction
To discuss: Whether the failure in employing the replacement chain analysis based on the
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The discounted payback rule could reject good long-term projects and can easily mis-rank competing projects. Based on the discounted payback calculation, give reasons why this method can lead to nonsensical decisions.
“If the initial cost of an investment project is not totally sunk (the project is not totally irreversible), one should not consider real options” True or False? Write a short answer that offers a discussion about the statement.
Which of the following is correct?
• the shorter a projects payback period, the less desirable the project is normally considered to be by this criterion
• one drawback of the payback criterion is that this method does not take account of cash flows beyond the payback period.
• if a projects payback is postitive, then the project should be accepted because it must have a positive NPV
• the regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem
•one drawback of the discounted payback is that this method does not consider the time value of money, while the regular payback overcomes this drawback.
Chapter 12 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 12 - What types of projects require the least detailed...Ch. 12 - Prob. 3QCh. 12 - Prob. 4QCh. 12 - Prob. 5QCh. 12 - A project has an initial cost of 40,000, expected...Ch. 12 - IRR Refer to Problem 12-1. What is the projects...Ch. 12 - Prob. 3PCh. 12 - Prob. 4PCh. 12 - Prob. 5PCh. 12 - Prob. 6P
Ch. 12 - Your division is considering two investment...Ch. 12 - Edelman Engineering is considering including two...Ch. 12 - Prob. 9PCh. 12 - Project S has a cost of $10,000 and is expected to...Ch. 12 - Prob. 11PCh. 12 - After discovering a new gold vein in the Colorado...Ch. 12 - Prob. 13PCh. 12 - Prob. 14PCh. 12 - The Pinkerton Publishing Company is considering...Ch. 12 - Shao Airlines is considering the purchase of two...Ch. 12 - The Perez Company has the opportunity to invest in...Ch. 12 - Filkins Fabric Company is considering the...Ch. 12 - The Ulmer Uranium Company is deciding whether or...Ch. 12 - The Aubey Coffee Company is evaluating the...Ch. 12 - Your division is considering two investment...Ch. 12 - The Scampini Supplies Company recently purchased a...Ch. 12 - You have just graduated from the MBA program of a...Ch. 12 - Prob. 2MCCh. 12 - Define the term “net present value (NPV).” What is...Ch. 12 - Prob. 4MCCh. 12 - Prob. 5MCCh. 12 - What is the underlying cause of ranking conflicts...Ch. 12 - Prob. 7MCCh. 12 - Prob. 8MCCh. 12 - Prob. 9MCCh. 12 - Prob. 10MCCh. 12 - In an unrelated analysis, you have the opportunity...Ch. 12 - Prob. 12MC
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- Using NPV, a project is rejected if it is a. equal to zero. b. negative. c. positive. d. equal to the required rate of return. e. greater than the cost of capital.arrow_forwardUsing IRR, a project is rejected if the IRR a. is equal to the required rate of return. b. is less than the required rate of return. c. is greater than the cost of capital. d. is greater than the required rate of return. e. produces an NPV equal to zero.arrow_forwardIf 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?arrow_forward
- 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.arrow_forwardIs this statement ture or false? Requiring a relative short pay-back period for projects indicates a high risk avoiding propensity within the organisationarrow_forwardis this statement true or false? and why? Requiring a relative short pay-back period for projects indicates a high-risk avoiding propensity within the organisationarrow_forward
- As the project is able to cover the cost in less than the life of the project and all other parameters are profitable. One should Accept the Project. What is the meaning of "less than the life of the project and all other parameters are profitable".?arrow_forwardWhich of the following are significant flaws with the Payback Period Method? (Select all that apply) A. Biased against long-term projects B. Uses an arbitrary benchmark C. Very rarely used in practice D. Uses accounting profits rather than cash flows E. Ignores Time Value of Moneyarrow_forwardwhat does it mean if the npv and irr are both negative quora, should the company invest in the project or not?arrow_forward
- 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?arrow_forwardDoes the benefit-cost analysis result in definite proof that the project would have little value to the tax-payers in the long run?arrow_forwardWhich of the following statements is false? The equivalent annual value of a project is equal to the net present value of a project held in perpetuity, divided by the required rate of return. None of the given options is false. Management may select a project with a lower net present value because qualitative factors may render the other project less attractive. The rejection of positive net present value projects by management is inconsistent with the objective of maximising shareholder wealth.arrow_forward
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