If a corporation has projects that will earn more than the cost of capital, should it ration capital? From a purely economic viewpoint, a firm should not ration capital. The firm should be able to find add itional funds and increases its overall profitability and wealth through accepting investments to the point where marginal return equals marginal cost 12-8 What is the net present value profile? What three points should be determined to graph the profile? The net present value profile allows for the graphic portrayal of the net present value of a project at different discount rates. Net present values are shown along the vertical axis and discount rates are shown along the horizontal axis The points that must be determined to graph the profile are a. The net present value at zero discount rate b. The net present value as determined by a normal discount rate c. The internal rate of return for the investment How does an asset's ADr (asset depreciation range)relate to its mACRS The ADR represents the asset depreciation range or the expected physical life of the asset generally the midpoint of the range or life is utilized The longer the adr midpoint, the longer the MACrS category in which the asset is placed. However, most assets can still be written off more rapidly than the midpoint of the ADR. For example, assets with ADR midpoints of 10 yea 15 years can be placed in the 7-year MACRS category for depreciation s to purpos CopyrightC 2005 by The McGray-Hill Companies, Inc. S-422Copyright © 2005 by The McGraw-Hill Companies, Inc. S-422 12-7. If a corporation has projects that will earn more than the cost of capital, should it ration capital? From a purely economic viewpoint, a firm should not ration capital. The firm should be able to find additional funds and increases its overall profitability and wealth through accepting investments to the point where marginal return equals marginal cost. 12-8. What is the net present value profile? What three points should be determined to graph the profile? The net present value profile allows for the graphic portrayal of the net present value of a project at different discount rates. Net present values are shown along the vertical axis and discount rates are shown along the horizontal axis. The points that must be determined to graph the profile are: a. The net present value at zero discount rate. b. The net present value as determined by a normal discount rate. c. The internal rate of return for the investment. 12-9. How does an asset's ADR (asset depreciation range) relate to its MACRS category? The ADR represents the asset depreciation range or the expected physical life of the asset. Generally, the midpoint of the range or life is utilized. The longer the ADR midpoint, the longer the MACRS category in which the asset is placed. However, most assets can still be written off more rapidly than the midpoint of the ADR. For example, assets with ADR midpoints of 10 years to 15 years can be placed in the 7-year MACRS category for depreciation purposes