Which is the best capital investment evaluation technique for ranking investment opportunities?

5. Which is the best capital investment evaluation technique for ranking investment opportunities?


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Select the best answer for each of the following

Exercise 18-9 (Multiple Choice) Select the best answer for each of the following
1. Premiums received on general obligation bonds are generally transferred to what fund or group of account?
2. Of the items listed below, those most likely to have parallel accounting procedures account titles and financial statement are
3. Recreational facilities run by governmental unit and financed on a user-charge basis would be accounted for in which funds?
4. Taylor city should record depreciation a an expense in its
5. A performance budget relates a governmental unit’s expenditures


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Valley Corporation is attempting to select the best of a group of independent projects competing for the firm’s fixed capital budget of $4.5 million

Valley Corporation is attempting to select the best of a group of independent projects competing for the firm’s fixed capital budget of $4.5 million. The firm recognizes that any unused portion of this budget will learn than its 15% cost of capital, thereby resulting in a present value of inflows that is less than the initial investment. The firm has summarized, in the following table, the key data to be used in selecting the best group projects.

Project Initial Investment IRR Present Value of inflows at 15%
A $5,000,000 17% $5,400,000
B 800,000 18 1,100,000
C 2,000,000 19 2,300,000
D 1,500,000 16 1,600,000
E 800,000 22 900,000
F 2,500,000 23 3,000,000
G 1,200,000 20 1,300,000

a. Use the internal rate of return (IRR) approach to select the best group of projects.
b. Use the net present value (NPV) approach to select the best group of projects.
c. Compare, contrast, and discuss your findings in parts a and b.
d. Which projects should the firm implement? Why?

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Axis Corp. is considering investment in the best of two mutually exclusive projects

Axis Corp. is considering investment in the best of two mutually exclusive projects. Project Kelvin involves an overhaul of the existing system; it will cost $45,000 and generate cash inflows of $20,000 per year for the next 3 years. Project Thompson involves replacement of the existing system; it will cost $275,000 and generate cash inflows of $60,000 per year for 6 years. Using an 8% cost of capital, calculate each project's NPV, and make a recommendation based on your findings.

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