The [term1] [term2] value of the project is the difference between the present value of future cash inflows and the present value of future cash outflows of an investment project (2 words, 1 point for each, up to 2 points).

The following table relates to two capital-budgeting projects of equal risk and reports the present value of the cashflows in the relevant periods. Which of the projects has the higher Profitability Index and will be selected if Profitability Index is used as the selection criteria?

Present value payback period is usually shorter than regular payback period.

If a company is in the situation of having unlimited capital funds, the best decision rule, considering only financial factors, is for the company to invest in all projects in which:

Repeated for your convenience (i.e., you can use the answers for the previous questions to answer the subsequent questions):Pique Corporation wants to purchase a new machine for $300,000. Management predicts that the machine can produce additional incremental cash sales of $200,000 each year for the next 5 years. The relevant incremental cash expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Pique’s combined marginal income tax rate is 40%.Management requires a minimum after-tax rate of return (i.e., discount rate) of 10% on all investments. Question 5. What is the net present value (NPV) of the investment?

Which of the following is the major, most important and difficult to overcome challenge for estimation of revenues (or benefits), costs and cash flows of a capital investment projects, especially for projects with long lives? (choose the best answer)

Below is the table of the after-tax cashflows for the project discounted at 10 % discount rate: What is the present value payback period in this case rounded to one digit (assuming 10 % discount rate)?

Repeated for your convenience (i.e., you can use the answers for the previous questions to answer the subsequent questions):Pique Corporation wants to purchase a new machine for $300,000. Management predicts that the machine can produce additional incremental cash sales of $200,000 each year for the next 5 years. The relevant incremental cash expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Pique’s combined marginal income tax rate is 40%.Management requires a minimum after-tax rate of return (i.e., discount rate) of 10% on all investments. Question 5. What is the net present value (NPV) of the investment?

Micro Advantage Inc. hast $ 6,000,000 preferred stock outstanding that it sold for $ 21 per share. The preferred stock has a per share value of $20 and pays $2 dividend per year. The current market price is $ 26 per share. The firm’s tax bracket is 20 %. What is the after-tax cost of the preferred stock?

Micro Advantage Inc. issued a $ 4,000,000, 20-year bond a year ago at 96 with a stated rate of 10 %. Today, the bond is selling at 110. If the firm’s marginal tax bracket is 40 %, what is the current after-tax cost of this debt?