University of Dallas Capital Budgeting, Risk and Return Questions
Homework 4: Capital Budgeting, Risk and Return 1. ABC Inc. is considering a project that has the following cash flow and WACC data. What is the project’s NPV? Note that if a project’s expected NPV is negative, it should be rejected. WACC:9% Year 0 1 2 3 4 5 Cash flows -$1,000 $500 $400 $300 $300 $300 2. ABC Enterprises is considering a project that has the following cash flow and WACC data. What is the project’s NPV? Note that a project’s expected NPV can be negative, in which case it will be rejected. WACC: 10% Year Cash flows 0 -$1,050 1 $450 2 $460 3 $470 3. Warranty Inc. is considering a project that has the following cash flow and WACC data. What is the project’s NPV? Note that a project’s expected NPV can be negative, in which case it will be rejected. WACC:8% Year Cash flows 0 -$950 1 $500 2 $400 3 $300 4. Berry Company is considering a project that has the following cash flow and WACC data. What is the project’s NPV? Note that a project’s expected NPV can be negative, in which case it will be rejected. WACC:12% Year Cash flows 0 -$1,000 1 $400 2 $390 3 $380 4 $370 5 $360 5. Data Computer Systems is considering a project that has the following cash flow data. What is the project’s IRR? Note that a project’s IRR can be less than the WACC (and even negative), in which case it will be rejected. Year Cash flows 0 -$1,100 1 $450 2 $480 3 $500 6. XYZ Corp. is considering a project that has the following cash flow data. What is the project’s IRR? Note that a project’s IRR can be less than the WACC or negative, in both cases it will be rejected. Year 0 1 2 3 Cash flows -$1,000 $325 $425 $525 7. WWW Company is considering a project that has the following cash flow data. What is the project’s IRR? Note that a project’s IRR can be less than the WACC or negative, in both cases it will be rejected. Year 0 1 2 3 4 Cash flows -$1,000 $300 $400 $400 $500 8. Talent Inc. is considering a project that has the following cash flow data. What is the project’s payback period and discounted payback period? Assume the cost of capital is 12%. Year Cash flows 0 -$1,150 1 $500 2 $500 3 $600 9. Redesign Inc. is considering a project that has the following cash flow data. What is the project’s payback period and discounted payback period? Assume the cost of capital is 12%. Year Cash flows 0 -$500 1 $200 2 $200 3 $200 10 . ABC Inc.’s stock has a 40% chance of producing a 20% return, a 20% chance of producing a10% return, and a 40% chance of producing a -10% return. What is the firm’s expected rate of return?
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