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Capital budgeting decisions are among the most important decisions that financial managers
make. Indicate whether each of the following statements about capital budgeting is true or false.
I Capital projects are either mutually exclusive or independent. Which of the following
statements are correct? Check all that apply. Capital budgeting involves evaluating the value of
long-term assets or projects. Which of the following should be included In the capital budgeting
process? Check all that apply. Rydell Engineering is evaluating a proposed capital budgeting
project that will require an initial investment of $160,000. The project is expected to generate the
following net cash flows: Assume the desired rate of return on a project of this type is 11%.
What is the net present value of this project?
Solution
2)
False
True
True
True
acceptance of rejection of an indpendent project does not affect cash flow og other projects
mutually exclusive projects are projects that whether accepted or rejected donot affect cash flow
of other projects
3)
all of the above
4)
NPV = -160000 + 43600/1.11 + 51500/1.11^2 + 48000/1.11^3 + 46900/1.11^4
= -12930.49
reject the project since NPV is negative

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Capital budgeting decisions are among the most important decisions tha.docx

  • 1. Capital budgeting decisions are among the most important decisions that financial managers make. Indicate whether each of the following statements about capital budgeting is true or false. I Capital projects are either mutually exclusive or independent. Which of the following statements are correct? Check all that apply. Capital budgeting involves evaluating the value of long-term assets or projects. Which of the following should be included In the capital budgeting process? Check all that apply. Rydell Engineering is evaluating a proposed capital budgeting project that will require an initial investment of $160,000. The project is expected to generate the following net cash flows: Assume the desired rate of return on a project of this type is 11%. What is the net present value of this project? Solution 2) False True True True acceptance of rejection of an indpendent project does not affect cash flow og other projects mutually exclusive projects are projects that whether accepted or rejected donot affect cash flow of other projects 3) all of the above 4) NPV = -160000 + 43600/1.11 + 51500/1.11^2 + 48000/1.11^3 + 46900/1.11^4 = -12930.49
  • 2. reject the project since NPV is negative