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- 21 Fixed costs are irrelevant in decisions about whether a product should be retained or be dropped. True False 22 The required rate of return is the maximum rate of return that an investment project must viald to be acceptable. True False 23 Variable manufacturing costs are always relevant costs in short-term decisions. Immersive Reader True FalseWhat do you know about the mathematical value of the internal rate of return of a project under each of the following conditions? a. The annual worth of the project is greater than zero. b. The annual worth of the project is equal to zero. c. The annual worth of the project is less than zero.QUESTION 22 Refer to the data provided in Table 11.2 below to answer the following question(s). Table 11.2 Project New bookkeeping software New tractor New grain storage tanks Irrigation system Total Investment Expected Rate of Retum (percentage) 5 is greater than 5% is less than 15% (dollars) $150,000 $200,000 $250,000 $500,000 Refer to Table 11.2. When the interest rate is greater than 15% is less than 5% 12 10 15 the farmer will engage in no investment.
- John wants to invest $1 000 000. He has two options. The first option is to buy government bonds that earn 4% annually. The second option is to buy an apartment building that brings him $100 000 per year in revenues. Compare the two options in terms of their internal rates of return. (Your answer in the answer box should be either 1 or 2). Calculations should be provided.A firm has a capital budget of $30,000 and is considering three possible independent projects. Project A has a present outlay of $12,000 and yields $4,231 per annum for 5 years. Project B has a present outlay of $10,000 and yields $4,184 per annum for 5 years. Project C has a present outlay of $17,000 and yields $5,802 per annum for 10 years. Funds which are not allocated to one of the projects can be placed in a bank deposit. Identify seven combinations of project investments and a bank deposits which exhaust the budget. Which of the above combinations should the firm choose when the bank deposit rate is (i) 15% or (ii) 20%? Explain your answer and show your work. Suppose there is no option to deposit in the bank, but the projects are "divisible" (e.g. you may have 25% of project A). Which combination should the firm choose? Explain your answer and show your work. Use 15% as the deposit rate (discount rate).Following is false about discounted cash flow method to choose innovation projects 1.lt calculates net present value (NPV) for all projects 2. Higher NPV makes a project more attractive 3.Higher internal rate of return (IRR) makes a project more attractive 4.Rightly identifies and values strategic projects 5.Provides a decisive stand point over all project over cost metric 6.None of the above
- Describe the net future worth of the project?1. A capital budgeting project is acceptable if the rate of return required for such a project is greater than the project's internal rate of return. True FalseA pharmaceutical company has spent $500 million to date working on a blood pressure treatment. It has to decide whether to spend another $500 million today to get final approval from the FDA in two years. Once approved, expected profits will be $50 million per year for the foreseeable future. The firm’s cost of capital is 5%. Should the firm proceed? (Hint: use the perpetuity formula used to value projects found in the readings to find the value of the profit stream that starts in two years, and then discount that.) 2. Suppose some doctors do not see any advantage of using the drug over what they currently prescribe for patients and the profit stream is only $25 million per year. Should the firm proceed? 3. Going back to the original information, suppose there is a delay of a year in getting FDA approval. Should the firm proceed? 4. Going back to the original information, suppose the firm’s’ cost of capital is 10%. Should the firm proceed?
- Project informatioFyped Answers only In the table below presented the data on the investment in the renewable energy source (wind farm). This wind farm will be located in the scenic area (has a visual impact on the communities close by). Costs are estimated as follows: Construction cost = $750,000 Maintenance cost = $5,000 per year for the next 15 years Cost of dismantling at the end of 15-year lifespan = $35,000 Compensation for view loss = $25 annually per household for 2,000 household Benefits as follows: Market value of electricity = $150,000 per year Directions: 1. Construct the table for CBA analysis 2. Calculate present value (PV) of costs and benefits using the CBA table 3. Conduct a CBA test (as difference between present value of benefits and costs) 4. Make a decision on investment (Yes/No)There are four steps for the selection of capital investment projects 1) Generate alternative capital investment project proposals. 2) Estimate cash flows for each project proposal. 3) Evaluate and choose which investment project to undertake 4) When completed review the investment project to see which assumptions about the project were correct What is the point of looking at the assumptions made after the investment was completed? Would it be better if the review was undertaken at earlier intervals, such as the mid-way point or sooner?The internal rate of return on some project is defined as the rate of interest that a. makes the NPV of the project equal to zero b. makes the nominal return on the project equal to the real return C. compounds the interest rate d. makes the duration of the project equal to zero e. makes the equivalent annual cost of the project equal to its compounded rate