Fabozzi Frank, Peterson Pamela. Financial Management and Analysis Workbook

Подождите немного. Документ загружается.

120 QUESTIONS AND PROBLEMS

projects, the one with the highest ______________ may

______________ be the one with the best NPV.

SHORT ANSWER QUESTIONS

Refer to Chapter 13, pages 399–444 in Financial Manage-

ment and Analysis.

1. What are the six capital budgeting techniques? What

should be taken into consideration when applying each

technique?

2. What are the decision criteria for each capital budgeting

technique?

Ch13 Page 120 Tuesday, December 16, 2003 9:10 AM

Capital Budgeting Techniques 121

3. When should PI be used? When should it not be used?

4. What is the difference between the IRR and MIRR? Why

is using IRR or MIRR sometimes not appropriate?

Ch13 Page 121 Tuesday, December 16, 2003 9:10 AM

122 QUESTIONS AND PROBLEMS

5. Of all the capital budgeting techniques, which one is the

best evaluation technique? Which techniques do managers

most prefer in practice?

PROBLEMS

Refer to Chapter 13, pages 399–444 in Financial Manage-

ment and Analysis.

1. You are the manager and are considering the following

two projects for investment:

Year 0 Year 1 Year 2 Year 3

Project A ($10,000) $3,000 $7,000 $9,000

Project B ($5,000) $3,000 $4,000 $5,000

Ch13 Page 122 Tuesday, December 16, 2003 9:10 AM

Capital Budgeting Techniques 123

a. Calculate the payback period assuming end-of-the-year

cash ﬂows.

b. Calculate the discounted payback period assuming a

required rate of return of 10% and end-of-the-year cash

ﬂows.

Ch13 Page 123 Tuesday, December 16, 2003 9:10 AM

124 QUESTIONS AND PROBLEMS

c. Calculate the NPV of each project.

d. Calculate the PI of each project.

e. Calculate the IRR of each project.

Ch13 Page 124 Tuesday, December 16, 2003 9:10 AM

Capital Budgeting Techniques 125

f. Calculate the MIRR of each project assuming a reinvest-

ment rate of 10%.

g. If the projects are independent, which should be under-

taken?

h. If the projects are mutually exclusive, which one should

be undertaken?

Ch13 Page 125 Tuesday, December 16, 2003 9:10 AM

Ch13 Page 126 Tuesday, December 16, 2003 9:10 AM

CHAPTER

127

Capital Budgeting and Risk

FILL IN THE BLANKS

Refer to Chapter 14, pages 451–481 in Financial Manage-

ment and Analysis.

1. Uncertainty arises from different sources, depending on

the type of ______________ being considered, as well as

the circumstances and the ______________ in which it is

operating. Such circumstances include ______________

conditions, ______________ conditions, ______________,

______________ rates, and ______________ conditions.

2. The sources of ______________ influence ______________

cash flows when ______________ the risk of a capital

project. Therefore, there is a(n) ______________ cost to con-

sider: what the suppliers of capital could ______________

elsewhere for the ______________ level of ______________.

This is the required ______________ or cost of

______________ and it contains the ______________ return

necessary to ______________ investors for the risk they

bear, called the ______________ premium.

Ch14 Page 127 Tuesday, December 16, 2003 9:11 AM

128 QUESTIONS AND PROBLEMS

3. A project’s ______________ in isolation from the firm’s

other ______________ is also referred to as the project’s

______________ risk or ______________ risk. Because

most firms have many ______________, the

______________ risk of a project under consideration may

not be the ______________ risk for analysis. A firm is a(n)

______________ of assets, and the ______________ of

these different assets are not perfectly, positively

______________ with one another. The real concern is

with the ______________ of the project to the firm’s

______________ of assets and how it changes the

______________ of the firm’s ______________.

4. Three ______________ measures are used to evaluate the

______________ associated with a(n) ______________ pos-

sible outcomes: the ______________, the ______________

______________, and the ______________ of ______________.

The more ______________ or spread out the possible out-

comes, the ______________ the degree of ______________

or risk of what is expected in the future.

5. In attempting to asses risk, it is important to perform anal-

yses of the ______________ of cash flows to

______________ in the assumptions by ______________ the

cash flows for different ______________. ______________

analysis, also called ______________ analysis or

______________ analysis, is a method of looking at the

possible ______________, given a change in only

______________ of the factors at a time.

Ch14 Page 128 Tuesday, December 16, 2003 9:11 AM

Capital Budgeting and Risk 129

6. ______________ analysis provides a manageable approach

to changing ______________ or ______________ factors at

the ______________ time. It is ______________ simulation

by developing a(n) ______________ distribution of possible

______________, given a(n) ______________ distribution for

each ______________ that may ______________. With the

help of a computer simulation program, ______________

can be performed calculating ______________ of return that

yield a(n) ______________ distribution of the ______________

on investments.

7. An alternative approach that applies ______________ meth-

ods to ______________ assets, known as ______________

valuation (______________), considers the value of a project

that extends ______________ its value as measured by the

______________, meaning the value of project is

______________ by the value of ______________ inherent in

an investment opportunity. These ______________ are to

______________ the project, though there may be con-

straints (e.g., legally binding contracts) that affect when this

option can be ______________, the option to

______________, and the option to ______________ invest-

ment to some ______________ date. Because the options are

______________ decisions, the ______________ net present

value is referred to as the ______________ NPV.

8. The ______________ of stock options is rather complex, but

with the assistance of models such as the ______________

model, option values can be estimated. The ______________

option pricing model contains ______________ factors that

Ch14 Page 129 Tuesday, December 16, 2003 9:11 AM