FNAN522-020_860-202020
Question 1
A company is considering a project that has a
Correct
discount rate of 5%. It will require an initial
Mark 1.00 out investment of $200,000. In the first year, it will
of 1.00 have $100,000 in net cash inflows (one year after
the initial investment). In year 2, it will have cash
inflows of $100,000 (two years after the initial
investment), and in year 3 the project will generate
$200,000 (three years after the initial investment).
What is the project's NPV? Assume all cash flows
occur at the end of the year.
Select one:
a. $190,476
b. $193,204
c. $358,708
d. $158,709
The correct answer is: $158,709
, A project has an initial investment requirement of
$100,000. In year 1, it should earn $25,000; in year two,
$30,000; and in year 3, $50,000. What is the project's
internal rate of return? Assume the cash flows in years
one, two, and three happen at the end of the year.
Select one:
a. 5.0%
Question 2
b. 6.21%
Correct
c. 7.56%
Mark 1.00 out of 1.00
d. 2.21%
The correct answer is: 2.21%
Question 3
In which of the following situations would it be
Correct
appropriate to use the IRR method to make an
investment decision?
Mark 1.00 out of 1.00
Select one:
To compare two projects that have an equal initial
investment and lifespan.
All of these answers.
To assess a project which cash flows fluctuate between
positive and negative.
To compare two investments that have different
durations.
The correct answer is: To compare two projects that have an
equal initial investment and lifespan.
, Under the internal rate of return rule in capital
budgeting, which of the following statements
CANNOT be true?
Select one:
The initial investment can be the cost from purchasing
new equipment.
The cash inflows can be estimates.
Question 4
The internal rate of return can vary throughout the life
Correct
of a project.
Mark 1.00 out of 1.00 The internal rate of return can be equal to the cost of
capital.
The correct answer is: The internal rate of return can vary
throughout the life of a project.
Question 5
You have just been offered a contract worth
Incorrect $5.6 million per year for 3 years. However,
to take the contract, you will need to
Mark 0.00 out of 1.00
purchase some new equipment. Your
discount rate for this project is 15.3%.
You are still negotiating the purchase price
of the equipment. What is the most you can
pay for the equipment and still have a
positive NPV?
Select one:
$5.6 million
$16.8 million
$23.4 million
$12.6 million
The correct answer is: $12.6 million
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