Flynn, Inc. is considering a four-year project that has an initial outlay or cost of $80,000. The future cash inflows from its project are $40,000, $40,000, $30,000, and $30,000 for years 1, 2, 3 and 4, respectively. Flynn uses the internal rate of return method to evaluate projects. What is the approximate IRR for this […]
The IRR is the discount rate that produces a zero NPV or the specific discount rate at which the present value of the cost equals ________. A) the future value of the present cash outflows B) the present value of the future benefits or cash inflows C) the present value of the cash outflow D) […]
Until now, Delaware East, Inc has been an all-equity firm; its most recent market equity value was $80 mn., and its cost of equity (and cost of assets) is 15%. Now, the firm decides to increase its leverage by issuing $40 mn. in debt, with the proceeds being used to pay a dividend to shareholders. […]
Due to its secondary position relative to equity, suppliers of debt capital face greater risk and therefore must be compensated with higher expected returns than suppliers of equity capital. Indicate whether the statement is true or false ANSWER FALSE
Rogue River, Inc. is considering a project that has an initial outlay or cost of $220,000. The respective future cash inflows from its four-year project for years 1 through 4 are: $50,000, $60,000, $70,000, and $80,000, respectively. Rogue River uses the internal rate of return method to evaluate projects. Will Rogue River accept the project […]
Simpson, Inc. is considering a five-year project that has an initial outlay or cost of $80,000. The respective future cash inflows from its project for years 1, 2, 3, 4 and 5 are: $15,000, $25,000, $35,000, $45,000, and $55,000. Simpson uses the internal rate of return method to evaluate projects. What is the project’s IRR? […]
Meyer, Inc. is considering a very risky five-year project that has an initial outlay or cost of $70,000. The future cash inflows from its project for years 1, 2, 3, 4, and 5 are all the same at $35,000. Meyer uses the internal rate of return method to evaluate projects. Will Meyer accept the project […]
________ involves the sale of accounts receivable. A) Trust receipt loan B) Factoring C) Field warehouse arrangement D) Pledging of accounts receivable ANSWER B
Washington Industries Inc. is considering a project that has an initial after-tax outlay or after-tax cost of $350,000. The respective future cash inflows from its five-year project for years 1 through 5 are $75,000 each year. Washington expects an additional cash flow of $50,000 in the fifth year. The firm uses the IRR method and […]
The most popular alternative to NPV for capital budgeting decisions is the ________ method. A) internal rate of return (IRR) B) payback period C) discounted payback period D) profitability index ANSWER Answer: A
