2. Weekly Homework: Answer the following questions and submit.
· Chapter 13: questions 1, 2, 3, 4, 5, 6, 7 and 8 on pages 392 and 393 of the text. (3 hours) (W7.1 through W7.4).
1. Is the set of cash flows depicted below normal or non-normal? Explain. (LG13-1)
Time: 0 1 2 3 4 5
Cash flow: –$100 –$50 –$80 –$0 –$100 –$100
2. Derive an accept/reject rule for IRR similar to equation 13-8 that would make the correct decision on cash flows that are non-normal, but which always have one large positive cash flow at time zero followed by a series of negative cash flows. (LG13-1)
Time: 0 1 2 3 4 5
Cash flow: + – – – – –
3. Is it possible for a company to initiate two products that target the same market that are not mutually exclusive? (LG13-1)
4. Suppose that your company used “APV,” or “All-the-Present Value-Except-CF0 ,” to analyze capital budgeting projects. What would this rule’s benchmark value be? (LG13-3)
5. Under what circumstances could payback and discounted payback be equal? (LG13-2)
6. Could a project’s MIRR ever exceed its IRR? (LG13-4)
7. If you had two mutually exclusive, normal-cash-flow projects whose NPV profiles crossed at all points, for which range of interest rates would IRR give the right accept/reject answer? (LG13-5)
8. Suppose a company wanted to double the firm’s value with the next round of capital budgeting project decisions. To what would it set the PI benchmark to make this goal? (LG13-6)