Answered: In mutually exclusive projects, a firm…

In mutually exclusive projects, a firm will evaluate all alternatives and select the best project that contributes the most to the value of the firm. Select one: O True O False

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 4Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

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In mutually exclusive projects, a firm will evaluate all alternatives and select the best project that
contributes the most to the value of the firm.
Select one:
O True
O False

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Suppose that a firm must choose between two mutually exclusive projects, both of which have negative NPVs. Explain how a firm can legitimately choose between two such projects.
The company has an option of investing in Project A or Project B. If Project A is accepted, Project B will not be automatically be rejected. It can be said that Projects A and Project B are: mutually exclusive projects independent projects dependent projects mutually inclusive projects
Question A Explain why firms choose to decentralize and give an example. Question B Explain why NPV is generally preferred over IRR when choosing among competing or mutually exclusive projects. Why would managers continue to use IRR to choose among mutually exclusive projects?
When identifying the investment alternatives: Solve, a. Identify mutually exclusive alternatives b. Identify collectively exhaustive alternatives c. Frequently include the “do nothing” alternative d. All of the above.
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Further suppose that the same Firm XYZ from Question 1 is considering investments in two projects. Assume that the projects are mutually exclusive. Further assume the following information for the two projects (values are in 1000s): Project A -5,600 1,325 2,148 4,143 Project B -8,400 1,325 2,148 8,055 Year 1 3 Assume that the required return for the two projects is 8%. Show all work for each part of the problem that requires computation. a) What is the NPV for Project A? b) What is the NPV for Project B? c) What is the IRR for Project A? d) What is the IRR for Project B?
What is the NPV decision rule for discretionary mutually exclusive projects? A. Accept the project with the highest NPV, even if the NPV is negative. B. If there is sufficient capital, accept all positive-NPV projects. C. Accept the project with the highest IRR. D. Accept the project with the highest NPV, as long as the NPV is positive
Why NPV is generally preferred over IRR when choosing among competing or mutually exclusive projects. Why would managers continue to use IRR to choose among mutually exclusive projects?
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What is the difference between a mutually exclusive project/investment and an independent project/investment? What is the best method or technique (NPV, IRR, Payback, Discounted Payback) to use in evaluating each type of project?
Which of the following techniques for deciding on taking a project has the criteria for acceptance or rejection determined by the management of the firm? a. Payback b. Pl c. NPV d. IRR