A College Intern Working at Anderson Paints Evaluated Potential Investments-That

question 65

Multiple Choice

A college intern working at Anderson Paints evaluated potential investments-that is,capital budgeting projects-using the firm's average required rate of return (WACC) ,and he produced the following report for the capital budgeting manager: The capital budgeting manager usually considers the risks associated with capital budgeting projects before making her final decision.If a project has a risk that is different from average,she adjusts the average required rate of return by adding or subtracting 2 percentage points.If the four projected listed above are independent,which one(s) should the capital budgeting manager recommend be purchased?

• A) Project LOM only, because it has both the highest NPV and the higher IRR.
• B) Projects LOM, QUE, and YUP, because they all have positive NPVs and their IRRs.
• C) Projects DOG and QUE, because their IRRs are greater than their risk-adjusted discount he projects returns are higher than the rates of return that capital budgeting manager uses to evaluate them.
• D) Projects QUE, YUP, and DOG, because their IRRs are greater than their risk-adjusted discount rates-that is, the projects returns are higher than the rates of return that capital budgeting manager uses to evaluate them.
• E) There is not enough information to answer this question, because the firm's average required rate of return cannot be determined.

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Definitions:

Proportions

A statistical measure that represents the size of part of a whole, typically expressed as a fraction or percentage.

Proportion of Female Managers

The ratio or percentage of managerial positions held by women in a given organization or sector.

Conclusion

The end or finish of an event, process, or text, often summarizing findings or results.

Power Curve

A graphical representation used in statistics to show the probability of rejecting the null hypothesis at various effect sizes.