Page 365 - F2 - MA Integrated Workbook STUDENT 2018-19

Capital budgeting

Test your understanding 8

A, B and E are true

With mutually exclusive projects, the project with the highest IRR should be
selected

The IRR does not provide an absolute measure, it is a relative measure.

Test your understanding 9

-7
(1 – (1.08) )/ 0.08 = 5.206 (or taken from the present value tables)
£3,600 × 5.206 = $18,741.63

Test your understanding 10

NPV = ($5,670/0.09) × $50,000 = $13,000

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