solve these 2 pratice problems Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of$1,500,000.Blue Llama Mining Company has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start usingthe IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because percentages and returns areeasier to understand and to compare to required returns. Blue Llama Mining Company's WACC is 9%, and project Delta has the samerisk as the firm's average project.The project is expected to generate the following net cash flows:YearYear 1Year 2Year 3Year 4Cash Flow$275,000$400,000$500,000$400,000Which of the following is the correct calculation of project Delta's IRR?1.86%O 1.77%O 2.23%O 1.95%If this is an independent project, the IRR method states that the firm shouldIf the project's cost of capital were to increase, how would that affect the IRR?O The IRR would not change.O The IRR would decrease.O The IRR would increase. Suppose Happy Dog Soap Company is evaluating a proposed capital budgeting project (project Alpha) that will require an initialinvestment of $500,000. The project is expected to generate the following net cash flows:Year Cash FlowYear 1Year 2Year 3Year 4$350,000$425,000$425,000$400,000Happy Dog Soap Company's weighted average cost of capital is 8%, and project Alpha has the same risk as the firm's average project. Based on thecash flows, what is project Alpha's net present value (NPV)?O $1,169,834O $819,834O $1,219,834O $942,809Making the accept or reject decisionHappy Dog Soap Company's decision to accept or reject project Alpha is independent of its decisions on other projects. If the firm follows the NPVmethod, it shouldproject Alpha.Which of the following statements best explains what it means when a project has an NPV of $0?O When a project has an NPV of $0, the project is earning a profit of $0. A firm should reject any project with an NPV of $0, because theproject is not profitable.When a project has an NPV of $0, the project is earning a rate of return less than the project's weighted average cost of capital. It's OK toaccept the project, as long as the project's profit is positive.O When a project has an NPV of $0, the project is earning a rate of return equal to the project's weighted average cost of capital. It's OK toaccept a project with an NPV of $0, because the project is earning the required minimum rate of return.

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Description: solve these 2 pratice problems Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of$1,500,000.Blue Llama Mining Company has been basing capital budgeting decisions on

IRR is the time value method of capital budgeting and in this net present value is zero and present…

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$1,500,000. Blue Llama Mining Company has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because percentages and returns are easier to understand and to compare to required returns. Blue Llama Mining Company's WACC is 9%, and project Delta has the same risk as the firm's average project. e project is expected to generate the following net cash flows: Year Year 1 Cash Flow $275,000

$1,500,000. Blue Llama Mining Company has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because percentages and returns are easier to understand and to compare to required returns. Blue Llama Mining Company's WACC is 9%, and project Delta has the same risk as the firm's average project. e project is expected to generate the following net cash flows: Year Year 1 Cash Flow $275,000

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 9P

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