Finance Chpater 10 Quiz Problems

| November 24, 2016

Question
QUESTION 1

1. Farmer Co. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the shorter payback, some value may be forgone. How much value will be lost in this instance? Note that under some conditions choosing projects on the basis of the shorter payback will not cause value to be lost.

WACC:

10.25%

Year

0

1

2

3

4

CFS

-$950

$500

$800

$0

$0

CFL

-$2,100

$400

$800

$800

$1,000

$24.14

$26.82

$29.80

$33.11

$36.42

QUESTION 2

1. Worthington Inc. is considering a project that has the following cash flow data. What is the project’s payback?

Year

0

1

2

3

Cash flows

-$500

$150

$200

$300

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