Exam 5: Comparison Methods: Part Ii

The internal rate of return (IRR)is

YVY Consulting group received a contract to evaluate a new technological line to produce shoes. The project is subject to the following cash flows: If the market price of a pair of shoes is $70 and the MARR is 15%, is this a good investment on the basis of the IRR?

What is the IRR corresponding to this cashflow diagram?

Consider two mutually exclusive investments with a MARR of 60%: The first has an initial investment of $15 000 and returns $30 000 at the end of a year. The second costs $45 000 and returns $85 500 at the end of a year. Which is the preferred investment?

What are the advantages and disadvantages of the comparison method based on the IRR against the present worth comparison method?

The following table summarizes information for five projects: The data can be interpreted in the following way: The IRR on the incremental investment between project 5 and project 4 is 16%. If the projects are mutually exclusive, which projects should be undertaken if the MARR is 15%?

A project is represented by the following graphs: What is the internal rate of return for this project?

Unlike the internal rate of return method, the present and annual worth computations

What is the major advantage of the internal rate of return comparison method?

You have two ways to invest $1 000 000 you won in a lottery: (i)to buy government bonds that earn 4% annually, or (ii)to buy an apartment building that brings you $100 000 per year in revenues. Compare the two options in terms of their internal rates of return.

A project is subject to the following cash flow diagram: What is its rate of return?

I sign a contract that guarantees me an immediate payment of $2 000, but then I have to invest $800 a year for ten years. At the end of the tenth year I get a further payment of $8 000. What is my internal rate of return on the contract?

A project involves an immediate expenditure of $2 000, and will require additional expenditures of $150 a year for the next ten years, starting one year from now. After ten years it yields an income of $8 000, but a year later a further expenditure of $1 000 will be required to close down the project. What is its rate of return?

Suppose that a project pays $5 000 on odd years and costs $5 000 on even years. If the life of the project is 6 years, what is its approximate external rate of return if the MARR is 10%? Would you accept or reject such a project?

What is the difference between the internal rate of return and the minimum acceptable rate of return?

Suppose that Maria borrowed $5 000 from a bank to be repaid in five equal annual payments of $1 250. What is the IRR of this transaction?

The internal rate of return (IRR)is negative if

What projects are called simple investments?

I sign a contract that guarantees me an immediate payment of $2 000, but then I have to invest $800 a year for ten years. At the end of the tenth year I get a further payment of $8 000. If I can invest money at 10% interest, what is my approximate external rate of return on the contract?

Assume that Stan takes a student loan of $5 000 at the beginning of his first year at Miskatonic University and graduates at the end of year 5. After graduation, a 7% interest rate on the debt is applied. If Stan makes four equal annual payments to re-pay the debt in four years after graduation, what is the IRR on his loan?