Activity 2: Concept Check Extension to Q2 (skip if time is restricted) State clearly if you would accept the following independent projects? Assume the opportunity cost of capital is 12% for each project and that the cash flows generated for each project are conventional. If you decide to undertake an investment in a project explain why? If you decide not to undertake investment in a project explain why not? (i) “Project alpha” has a small, but negative, NPV. (ii) “Project beta” has a very small positive NPV when discounted at 10%. (iii) “Project gamma” has a cost of capital that exceeds its rate of return. (iv) “Project delta” has a zero NPV when discounted at 14%.

Activity 2: Concept Check (IRR and NPV) Q3) Which of the following statements is FALSE? A The IRR investment rule states you should turn down any investment opportunity where the IRR is less than the opportunity cost of capital. B In a standalone project (independent project), the decision made by applying NPV investment rule is usually consistent with that of IRR investment rule. C Since the IRR rule is based upon the rate at which the NPV equals zero, like the NPV decision rule, the IRR decision rule will always identify the correct investment decisions. D There are situations in which multiple IRRs exist. SUBMIT

Activity 2: Concept Check (Payback) Q1) Which of the following statements is FALSE? A Payback period refers to the number of periods take to recover the initial investment of a project. B The payback rule is reliable because it considers the time value of money and depends on the cost of capital. C The payback rule is primarily used because of its simplicity. D The payback rule is useful in cases where the cost of making an incorrect decision might not be large enough to justify the time required for calculating the NPV. SUBMIT

There are two projects: project A and project B. Each of the project has the cost of Rs 100,000 and cost of capital for each project is 12 percent. The project's expected net cash flows are as follows: Year Project A Project B 0 Rs (100,000) Rs (100,000) 1 65,000 35,000 2 30,000 30,000 3 30,000 30,000 4 10,000 10,000 a. Calculate NPV for each project. Which project or projects should be accepted if they are independent? b. Calculate IRR for each project. Which project should be accepted if they are mutually exclusive?

Which of the following statements is FALSE?Group of answer choicesIncome Tax = EBIT × Corporate Tax RateWe begin the capital budgeting process by determining the incremental earnings of a project.When sales of a new product displace sales of an existing product, the situation is often referred to as opportunity cost.Managers sometimes continue to invest in a project that has a negative NPV because they have already invested a large amount in the project and feel that by not continuing it, the prior investment will be wasted.

Which of the following can be a criterion for the acceptance of a project?