big time
1. What are the various capital-budgeting tools currently used by leading firms? Define each, and discuss the accept/reject criterion for each. Which one is “best,” and why is it best?
2. Evaluate the capital-budgeting criteria of Euroland Foods on page 326. Their “Minimum Acceptable IRR” criterion is wrong. Why? Also, why is their criteria not a complete set of criteria with which to evaluate projects?
3. Evaluate the “Minimum Acceptable IRR” returns that Euroland uses for different types of projects. (See page 326.) When, if ever, should these returns be used as the hurdle rate instead of WACC?
4. Evaluate Euroland’s capital rationing. Do you agree or disagree with this policy? Why? If you disagree, then what policy should Euroland follow?
5. In Exhibit 3, rank order (from first to fifth) the five most profitable of the 11 projects, in accordance with correct, risk adjusted capital-budgeting criteria. State the NPV of each of the five projects. Explain your ranking criteria. (Note: create a table showing ONLY the five most profitable projects and their profitability; do NOT state any other projects.)
6. Did Euroland take risk into account in its capital budgeting? If so, how? Which project is the riskiest, and why? There are several reasons why the riskiest project is riskiest; name three reasons.
7. Which of the 11 possible projects was not evaluated in Exhibit 3? Why do you think it was not evaluated? Calculate the NPV and the IRR of this project. Should it be undertaken? Why or why not?
FRIENDLY REMINDERS: Your case should be typed, using a word processor, and double-spaced using a size-12 font. Remember to replicate each question in bold and then place your non-bolded answer (double spaced) directly below the bolded question. (This enables your instructor to ensure that you receive the maximum number of points for each of your answers.) Also, your case should have a one-page cover memorandum containing an executive summary of your
2. Evaluate the capital-budgeting criteria of Euroland Foods on page 326. Their “Minimum Acceptable IRR” criterion is wrong. Why? Also, why is their criteria not a complete set of criteria with which to evaluate projects?
3. Evaluate the “Minimum Acceptable IRR” returns that Euroland uses for different types of projects. (See page 326.) When, if ever, should these returns be used as the hurdle rate instead of WACC?
4. Evaluate Euroland’s capital rationing. Do you agree or disagree with this policy? Why? If you disagree, then what policy should Euroland follow?
5. In Exhibit 3, rank order (from first to fifth) the five most profitable of the 11 projects, in accordance with correct, risk adjusted capital-budgeting criteria. State the NPV of each of the five projects. Explain your ranking criteria. (Note: create a table showing ONLY the five most profitable projects and their profitability; do NOT state any other projects.)
6. Did Euroland take risk into account in its capital budgeting? If so, how? Which project is the riskiest, and why? There are several reasons why the riskiest project is riskiest; name three reasons.
7. Which of the 11 possible projects was not evaluated in Exhibit 3? Why do you think it was not evaluated? Calculate the NPV and the IRR of this project. Should it be undertaken? Why or why not?
FRIENDLY REMINDERS: Your case should be typed, using a word processor, and double-spaced using a size-12 font. Remember to replicate each question in bold and then place your non-bolded answer (double spaced) directly below the bolded question. (This enables your instructor to ensure that you receive the maximum number of points for each of your answers.) Also, your case should have a one-page cover memorandum containing an executive summary of your