Question 8 (b)

INVESTMENT A
Year Cash Flow PV of Cash Flow
0 -100 ($100.00)
1 50 $45.05
2 70 $56.81
3 40 $29.25
NPV $31.11

INVESTMENT B
Year Cash Flow PV of Cash Flow
0 -100 ($100.00)
1 70 $63.06
2 75 $60.87
3 10 $7.31
NPV $31.25

Question 8 (c)

If investment are mutually exclusive, the cut off criteria is to accept and choose the invesment with the highest
positive NPV. Based on this company that has two invesments, Investment A and Investment B; Investment B
has the highest positive NPV compared to Investment A as Investment B is the investment that adds the most
value. Thus, accept Investment B since it is mutually exclusive (NPV B > NPVA

Question 8 (d)

INVESTMENT A
Year Cash Flow PV of Cash Flow
 0 -100 ($100.00)
1 50 $45.05
2 70 $56.81
3 40 $29.25
NPV $31.11
IRR 29%

INVESTMENT B
Year Cash Flow PV of Cash Flow
0 -100 ($100.00)
1 70 $63.06
2 75 $60.87
3 10 $7.31
NPV $31.25
IRR 32%

Based on the results obtained, both the IRR are higher comapred to the company's
required rate of return. The IRR for Investment A is at 29% and Investment B is at 32%.
Given the condition where when IRR is higher than the NPV, the project with the higher
value should be accepted as the return exceeds its costs and there will be some return
left over to boost stockholder's return. Hence, Investment B should accepted since the
investments are mutually exclusive.

Question 8 (e)

Capital budgeting practices involves all activities that are conducted by an organization to
determine whether the nature and type of long-term investments of an organization are
suitable or worth funding by the stakeholders of a company. Capital budgeting decisions
in manufacturing firms is the decision to invest in long-term assets like acquisition of new
assets and equipment, replacements of machinery, investing in development under
research and expansion of existing facilities are helpful in improving the smoothness of
the production systems and deliver high quality products. On the other hand, expansion
decisions are aimed to utilize the existing opportunities in the market and lead the firm
to the growth.
Question 8(f)

Cash flow falls in the working capital management category of the financial management.
Working capital management is used to maximize the operational efficiency by helping to
maintain smooth operations and also help to improve the company's earnings and
profitability. Besides that, the working capital management also includes the inventory
management, management of account receivables and management of account
payables.
 Independent project should be accepted if
the NPV >0. Since both the Investment A
and Investement B has NPV >0, they both
should be accepted. The cut-off criteria used
for this decision is

se the invesment with the highest

A and Investment B; Investment B
he investment that adds the most
ve (NPV B > NPVA

Interest: 11%