You are analyzing the following two mutually exclusive projects and have developed the following information.What is the incremental IRR? \[\begin{array} { | l | l | l | } \hline \text { Year } & \text { Project A } & \text { Project } \mathrm { B } \\ \hline \mathrm { 0 } & - £ 84,500 & - £ 7 6,900 \\ \hline 1 & £ 29,000 & £ 25,000 \\ \hline 2 & £ 40,000 & £ 35,000 \\ \hline 3 & £ 27,000 & £ 26,000 \\ \hline \end{array}\]

A) 11.11% B) 13.01% C) 14.91% D) 16.75% E) 17.90% A) 11.11% B) 13.01% C) 14.91% D) 16.75% E) 17.90%

Matt is analyzing two mutually exclusive projects of similar size and has prepared the following data.Both projects have 5 year lives. \(\begin{array}{|l|l|l|} \hline -& \text { Project } \mathrm{A} & \text { Project } \mathrm{B} \\ \hline \text { Net present value } & £ 15,090 & £ 14,693 \\ \hline \text { Payback period } & 2.76 \text { years } & 2.51 \text { years } \\ \hline \text { Average accounting return } & 9.3 \% & 9.6 \% \\ \hline \text { Required return } & 8.3 \% & 8.0 \% \\ \hline \text { Required AAR } & 9.0 \% & 9.0 \% \\ \hline \end{array}\) Matt has been asked for his best recommendation given this information.His recommendation should be to accept:

A) project B because it has the shortest payback period. B) both projects as they both have positive net present values. C) project A and reject project B based on their net present values. D) project B and reject project A based on their average accounting returns. E) project B and reject project A based on both the payback period and the average accounting return. A) project B because it has the shortest payback period. B) both projects as they both have positive net present values. C) project A and reject project B based on their net present values. D) project B and reject project A based on their average accounting returns. E) project B and reject project A based on both the payback period and the average accounting return.

What is the profitability index for an investment with the following cash flows given a 9% required return? \(\begin{array}{|l|l|} \hline \text { Year } & \text { Cash Flow } \\ \hline 0 & -£ 21,500 \\ \hline 1 & £ 7,400 \\ \hline 2 & £ 9,800 \\ \hline 3 & £ 8,900 \\ \hline \end{array}\)

A) .96 B) .98 C) 1.00 D) 1.02 E) 1.04 A) .96 B) .98 C) 1.00 D) 1.02 E) 1.04

You are considering two independent projects both of which have been assigned a discount rate of 8% .Based on the profitability index,what is your recommendation concerning these projects? \[\begin{array} { | l | l | l | } \hline \text { Year } & \text { Project A } & \text { Project } \mathbf { B } \\ \hline 0 & \text { -£38,500 } & -£42,000 \\ \hline 1 & £20,000 &£ 10,000 \\ \hline 2 & £24,000 & £ 40,000 \\ \hline \end{array}\]

A) You should accept both projects since both of their PIs are positive. B) You should accept project A since it has the higher PI. C) You should accept both projects since both of their PIs are greater than 1. D) You should only accept project B since it has the largest PI and the PI exceeds 1. E) Neither project is acceptable. A) You should accept both projects since both of their PIs are positive. B) You should accept project A since it has the higher PI. C) You should accept both projects since both of their PIs are greater than 1. D) You should only accept project B since it has the largest PI and the PI exceeds 1. E) Neither project is acceptable.

Exam 6: Net Present Value and Other Investment Rules

You are analyzing the following two mutually exclusive projects and have developed the following information.What is the incremental IRR? Year Project A Project -£84,500 -£76,900 1 £29,000 £25,000 2 £40,000 £35,000 3 £27,000 £26,000

(Multiple Choice)

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Question 41

The Winston Co.is considering two mutually exclusive projects with the following cash flows.The incremental IRR is _ and if the required rate is higher than the crossover rate then project _ should be accepted. Year Project A ProjectB 0 £75,000 -£60,000 1 £30,000 £25,000 2 £35,000 £30,000 3 £35,000 £25,000

(Multiple Choice)

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Question 42

A project has an initial cost of £38,000 and a four-year life.The company usesstraight-line depreciation to a book value of zero over the life of the project.The projected net income from the project is £1,000,£1,200,£1,500,and £1,700 a year for the next four years,respectively.What is the average accounting return?

(Multiple Choice)

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Question 43

Matt is analyzing two mutually exclusive projects of similar size and has prepared the following data.Both projects have 5 year lives. - Project Project Net present value £15,090 £14,693 Payback period 2.76 years 2.51 years Average accounting return 9.3\% 9.6\% Required return 8.3\% 8.0\% Required AAR 9.0\% 9.0\% Matt has been asked for his best recommendation given this information.His recommendation should be to accept:

(Multiple Choice)

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Question 44

The possibility that more than one discount rate will make the NPV of an investment equal to zero is called the _____ problem.

(Multiple Choice)

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Question 45

The IRR rule is said to be a special case of the NPV rule.Explain why this is so and why it has some limitations NPV does not?

(Essay)

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Question 46

You are considering two mutually exclusive projects with the following cash flows.Will your choice between the two projects differ if the required rate of return is 8% rather than 11% ? If so,what should you do? Year Project A Project B 0 -£240,000 -£198,000 1 £0 £110,800 2 £0 £82,500 3 £325,000 £45,000

(Multiple Choice)

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Question 47

No matter how many forms of investment analysis you do:

(Multiple Choice)

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Question 48

You are considering an investment with the following cash flows.If the required rate of return for this investment is 13.5%,should you accept it based solely on the internal rate of return rule? Why or why not? Year Cash Flow 0 -£12,000 1 £5,500 2 £8,000 3 -£1,500

(Multiple Choice)

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Question 49

An investment with an initial cost of £15,000 produces cash flows of £5,000 annually for 5 years.If the cash flow is evenly spread out over the year and the firm can borrow at 10%,the discounted payback period is _____ years.

(Multiple Choice)

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Question 50

What is the profitability index for an investment with the following cash flows given a 9% required return? Year Cash Flow 0 -£21,500 1 £7,400 2 £9,800 3 £8,900

(Multiple Choice)

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Question 51

You are considering a project with an initial cost of £4,300.What is the payback period for this project if the cash inflows are £550,£970,£2,600,and £500 a year over the next four years,respectively.

(Multiple Choice)

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Question 52

All else equal,the payback period for a project will decrease whenever the:

(Multiple Choice)

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Question 53

An investment is acceptable if its average accounting return (AAR):

(Multiple Choice)

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Question 54

A project has an initial cost of £8,500 and produces cash inflows of £2,600,£4,900,and £1,500 over the next three years,respectively.What is the discounted payback period if the required rate of return is 7%?

(Multiple Choice)

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Question 55

A project has an initial cost of £1,900.The cash inflows are £0,£500,£900,and £700 over the next four years,respectively.What is the payback period?

(Multiple Choice)

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Question 56

An investment cost £10,000 with expected cash flows of £3,000 for 5 years.The discount rate is 15.2382%.The NPV is _ and the IRR is _ for the project.

(Multiple Choice)

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Question 57

The advantages of the payback method of project analysis include the: I.application of a discount rate to each separate cash flow. II.bias towards liquidity. III.ease of use. IV.arbitrary cutoff point.

(Multiple Choice)

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Question 58

The primary reason that company projects with positive net present values are considered acceptable is that:

(Multiple Choice)

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Question 59

You are considering two independent projects both of which have been assigned a discount rate of 8% .Based on the profitability index,what is your recommendation concerning these projects? Year Project A Project 0 -£38,500 -£42,000 1 £20,000 £10,000 2 £24,000 £40,000

(Multiple Choice)

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(42)

Question 60

Exam 6: Net Present Value and Other Investment Rules

You are analyzing the following two mutually exclusive projects and have developed the following information.What is the incremental IRR? Year Project A Project -£84,500 -£76,900 1 £29,000 £25,000 2 £40,000 £35,000 3 £27,000 £26,000

The possibility that more than one discount rate will make the NPV of an investment equal to zero is called the _____ problem.

The IRR rule is said to be a special case of the NPV rule.Explain why this is so and why it has some limitations NPV does not?

No matter how many forms of investment analysis you do:

You are considering an investment with the following cash flows.If the required rate of return for this investment is 13.5%,should you accept it based solely on the internal rate of return rule? Why or why not? Year Cash Flow 0 -£12,000 1 £5,500 2 £8,000 3 -£1,500

An investment with an initial cost of £15,000 produces cash flows of £5,000 annually for 5 years.If the cash flow is evenly spread out over the year and the firm can borrow at 10%,the discounted payback period is _____ years.

What is the profitability index for an investment with the following cash flows given a 9% required return? Year Cash Flow 0 -£21,500 1 £7,400 2 £9,800 3 £8,900

You are considering a project with an initial cost of £4,300.What is the payback period for this project if the cash inflows are £550,£970,£2,600,and £500 a year over the next four years,respectively.

All else equal,the payback period for a project will decrease whenever the:

An investment is acceptable if its average accounting return (AAR):

A project has an initial cost of £8,500 and produces cash inflows of £2,600,£4,900,and £1,500 over the next three years,respectively.What is the discounted payback period if the required rate of return is 7%?

A project has an initial cost of £1,900.The cash inflows are £0,£500,£900,and £700 over the next four years,respectively.What is the payback period?

An investment cost £10,000 with expected cash flows of £3,000 for 5 years.The discount rate is 15.2382%.The NPV is ___ and the IRR is ___ for the project.

The advantages of the payback method of project analysis include the: I.application of a discount rate to each separate cash flow. II.bias towards liquidity. III.ease of use. IV.arbitrary cutoff point.

The primary reason that company projects with positive net present values are considered acceptable is that:

You are considering two independent projects both of which have been assigned a discount rate of 8% .Based on the profitability index,what is your recommendation concerning these projects? Year Project A Project 0 -£38,500 -£42,000 1 £20,000 £10,000 2 £24,000 £40,000

Introduction to Corporate Finance

Corporate Governance

Financial Statement Analysis and Long-Term Planning

Discounted Cash Flow Valuation

How to Value Bonds and Shares

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Factor Models and the Arbitrage Pricing Theory

Risk, cost of Capital, and Capital Budgeting

Corporate Financing Decisions and Efficient Capital Markets

Long-Term Financing: An Introduction

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividend and Other Payouts

Equity Financing

Debt Financing

Leasing and Off-Balance-Sheet Financing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Financial Risk Management With Derivatives

Short-Term Finance and Planning

Cash Management

Credit Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

Filters

An investment cost £10,000 with expected cash flows of £3,000 for 5 years.The discount rate is 15.2382%.The NPV is _ and the IRR is _ for the project.