Two Firms Evaluated the Same Capital Budgeting Project to Determine

question 41

Multiple Choice

Two firms evaluated the same capital budgeting project to determine whether to purchase it.The CFO of Anchor Weights Corporation (AWC) reported that she determined that the project's internal rate of return equals 9 percent,and she recommended that the project be purchased.The CFO of Sectional Spas Incorporated (SSI) simply reported that the project was unacceptable to his firm when he evaluated it using one of the capital budgeting techniques that consider the time value of money.Given this information,which of the following statements is correct?

• A) The net present value of the project must be positive for both firms.
• B) If the SSI's CFO computes the IRR for the project,he will find that it is less than 9 percent for his company.
• C) AWC's CFO must have used the traditional payback period method to evaluate the project.
• D) If the project is acceptable (unacceptable)to one firm,it must be acceptable (unacceptable)to both firms.As a result,one of the CFOs made a mistake when evaluating the project.
• E) SSI's must have a required rate of return that is greater than 9 percent.

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Definitions:

Test Statistic

A numerical value calculated from a sample used in statistical hypothesis testing to determine whether to reject the null hypothesis.

Normal Distribution

A probability distribution characterized by its symmetry surrounding the mean, demonstrating that data points close to the mean occur more frequently than those at a greater distance.

Degrees Of Freedom

Degrees Of Freedom represent the number of values in the final calculation of a statistic that are free to vary, often determining the shape of various sampling distributions.

Interaction Term

In statistical models, it represents the combined effect of two or more variables on a dependent variable, which is different from the effect of any one variable alone.