Chapter13,SolutionsCornett,Adair,andNofsinger13-CHAPTER13-WEIGHINGNETPRESENTVALUEANDOTHERCAPITALBUDGETINGCRITERIAQuestionsLG11.Isthesetofcashflowsdepictedbelownormalornon-normal?Explain.Time012345CashFlow-$100-$50$80$0$100$100They’renormal:thereisonlyonechangeincashflowsfromnegativetopositive.LG12.Deriveanaccept/rejectruleforIRRsimilarto13-8thatwouldmakethecorrectdecisiononcashflowsthatarenon-normal,butwhichalwayshaveonelargepositivecashflowattimezerofollowedbyaseriesofnegativecashflows:Time012345CashFlowSign+-----Withonepositiveatthebeginningandallfuturecashflowsnegative,thistypeofprojectwouldbeworthmoreifrateswerehigher,implyingthattheNPVprofilewouldbeupward-sloping.Sotheappropriateaccept/rejectdecisionrulewouldlooklikeAcceptProjectifIRR≤CostofCapitalRejectProjectifIRR>CostofCapitalLG13.Isitpossibleforacompanytoinitiatetwoproductsthattargetthesamemarketandarenotmutuallyexclusive?Sure,aslongasthemarkethasroomforbothproducts.LG24.Supposethatyourcompanyused“APV”,or“All-the-PresentValue-Except-CF0”,toanalyzecapitalbudgetingprojects.Whatwouldthisrule’sbenchmarkvaluebe?AcceptProjectifAPV≥-CF0RejectProjectifAPV<-CF0LG35.UnderwhatcircumstancescouldPaybackandDiscountedPaybackbeequal?Theywouldbeequalifi=0.LG56.Couldaproject’sMIRReverexceeditsIRR?MIRRwouldbegreaterthanIRRifaprojectwithnormalcashflowshadanegativeNPV.LG67.Ifyouhadtwomutuallyexclusive,normal-cash-flowprojectswhoseNPVprofilescrossedatallpoints,forwhichrangeofinterestrateswouldIRRgivetherightaccept/rejectanswer?Atallrates,becausewewouldbeindifferentbetweenthetwoprojectsatanyrate.LG78.Supposeacompanywantedtodoubletheirfirm’svaluewiththenextroundofcapitalbudgetingprojectdecisions.TowhatwouldtheysetthePIbenchmarktomakethisgoal?Theywouldsetitequalto1.LG59.Supposeacompanyfaceddifferentborrowingandlendingrates:HowwouldthisrangechangethewaythatyouwouldcomputetheMIRRstatistic?Wewouldwanttousetheborrowingratetomovethenegativecashflowstotime0,andthe