A College Intern Working at Anderson Paints Evaluated Potential Investments⎯that

question 59

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:

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A process by which sensory information is organized, interpreted, and consciously experienced.

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Relating to the mental processes involved in acquiring knowledge and understanding through thought, experience, and the senses.

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Abilities required to perform movements and tasks involving coordination between the brain and the muscles.