Purchase Solution

Cash Flow & Discount Rate

Not what you're looking for?

Ask Custom Question

Project A Project B
Initial Investment 100,000 100,000
Year 1 40,000 10,000
Year 2 40,000 10,000
Year 3 40,000 75,000
Year 4 40,000 85,000

1. If the discount rate is 7%, which of the following is true:

a. The firm should accept only project A
b. The firm should accept only project B
c. The firm should accept both projects A and B
d. The firm should accept neither project A or B

2. If the discount rate is 10% and the projects are mutually exclusive, which of the following is true:

a. The firm should accept only project A
b. The firm should accept only project B
c. The firm should accept both projects A and B
d. The firm should accept neither project A or B

3. At what25. rate of interest is the present value of Project A equal to (within $100) the present value of Project B?

a. 20%
b. 0%
c. 15%
d. None of these.

4.If the discount rate is 25% and the projects are not mutually exclusive, which of the following is true:

a. The firm should accept only project A
b. The firm should accept only project B
c. The firm should accept both projects A and B
d. The firm should accept neither project.

5.What effect would depreciation have on the projects selection criteria:

a.Since the initial investment is equal for the two projects, Depreciation tax shields would add equally to both projects, ensuring no change in project acceptance criteria at all interest rates.
b.At lower interest rates, the effect of depreciation will tend to favor project A over project B.
c.If the projects are mutually exclusive, the computation of depreciation tax shields will have no effect on selection, regardless of the size of the initial investment.
d.None of these is true.

Purchase this Solution

Solution Summary

This solution is comprised of a detailed explanation to answer if the discount rate is 7%, which of the following is true.

Solution Preview

Q5
a.Since the initial investment is equal for the two ...

Purchase this Solution


Free BrainMass Quizzes
Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.