Deck 6: Investment Decision Rules

Question 1

Which of the following statements is false?

A) About 75% of firms surveyed used the NPV rule for making investment decisions.
B) If you are unsure of your cost of capital estimate, it is important to determine how sensitive your analysis is to errors in this estimate.
C) To decide whether to invest using the NPV rule, we need to know the cost of capital.
D) NPV is positive only for discount rates greater than the internal rate of return.

Answer 1

NPV is positive only for discount rates greater than the internal rate of return.

Question 2

Use the table for the question(s) below.
Consider the following two projects:

The NPV for project beta is closest to:

A) $24.01
B) $16.92
C) $20.96
D) $14.41

Answer 2

$20.96

Question 3

Use the information for the question(s) below.
Boulderado has come up with a new composite snowboard. Development will take Boulderado four years and cost $250,000 per year, with the first of the four equal investments payable today upon acceptance of the project. Once in production the snowboard is expected to produce annual cash flows of $200,000 each year for 10 years. Boulderado's discount rate is 10%.
The NPV for Boulderado's snowboard project is closest to:

A) $228,900
B) $46,900
C) $51,600
D) $23,800

Answer 3

$51,600

Question 4

Use the following information to answer the question(s) below.
Frank Dewey Esquire from the firm of Dewey, Cheatum, and Howe, has been offered an upfront retainer of $30,000 to provide legal services over the next 12 months to Taggart Transcontinental . In return for this upfront payment, Taggart Transcontinental would have access to 8 hours of legal services from Frank for each of the next 12 months. Frank's normal billable rate is $250 per hour for legal services.
Assuming that Dewey's cost of capital is 12% EAR,then the NPV of his retainer offer is closest to:

A) -$7,500
B) -$7,400
C) $6,000
D) $7,400

Question 5

Use the information for the question(s) below.
Boulderado has come up with a new composite snowboard. Development will take Boulderado four years and cost $250,000 per year, with the first of the four equal investments payable today upon acceptance of the project. Once in production the snowboard is expected to produce annual cash flows of $200,000 each year for 10 years. Boulderado's discount rate is 10%.
The NPV profile

A) shows the payback period - the point at which NPV is positive.
B) shows the internal rate of return - the point at which NPV is zero.
C) shows the NPV over a range of discount rates.
D) B and C are correct.

Question 6

Use the table for the question(s) below.
Consider the following two projects:

The NPV for project alpha is closest to:

A) $20.96
B) $16.92
C) $24.01
D) $14.41

Question 7

Use the following information to answer the question(s) below.
Sarah Palin reportedly was paid a $11 million advance to write her book Going Rogue. The book took one year to write. In the time she spent writing, Palin could have been paid to give speeches and appear on TV news as a political commentator. Given her popularity, assume that she could have earned $8 million over the year (paid at the end of the year) she spent writing the book. Assume that she was able to write the book while simultaneously fulfilling her media commitments of appearing on TV news as a political commentator and give speeches.
Which of the following statements is false?

A) In general, the difference between the cost of capital and the IRR is the maximum amount of estimation error in the cost of capital estimate that can exist without altering the original decision.
B) The IRR can provide information on how sensitive your analysis is to errors in the estimate of your cost of capital.
C) If you are unsure of your cost of capital estimate, it is important to determine how sensitive your analysis is to errors in this estimate.
D) If the cost of capital estimate is more than the IRR, the NPV will be positive.

Question 8

Use the following information to answer the question(s) below.
You are considering investing in a start up project at a cost of $100,000. You expect the project to return $500,000 to you in seven years. Given the risk of this project, your cost of capital is 20%.
The NPV for this project is closest to:

A) $29,200
B) $39,500
C) $129,200
D) $139,500

Question 9

Use the table for the question(s) below.
Consider the following two projects:

The NPV of project A is closest to:

A) 12.0
B) 12.6
C) 15.0
D) 42.9

Question 10

Use the following information to answer the question(s) below.
You are considering investing in a start up project at a cost of $100,000. You expect the project to return $500,000 to you in seven years. Given the risk of this project, your cost of capital is 20%.
The IRR for this project is closest to:

A) 15.60%
B) 18.95%
C) 20.00%
D) 25.85%

Question 11

Use the following information to answer the question(s) below.
You are considering investing in a start up project at a cost of $100,000. You expect the project to return $500,000 to you in seven years. Given the risk of this project, your cost of capital is 20%.
The decision you should take regarding this project is

A) reject the project since the NPV is negative.
B) reject the project since the NPV is positive.
C) accept the project since the IRR < 20%.
D) accept the project since the IRR > 20%.

Question 12

Use the following information to answer the question(s) below.
Sarah Palin reportedly was paid a $11 million advance to write her book Going Rogue. The book took one year to write. In the time she spent writing, Palin could have been paid to give speeches and appear on TV news as a political commentator. Given her popularity, assume that she could have earned $8 million over the year (paid at the end of the year) she spent writing the book. Assume that she was able to write the book while simultaneously fulfilling her media commitments of appearing on TV news as a political commentator and give speeches.
The IRR of Palin's book deal is closest to:

A) -27.25%
B) -37.50%
C) 27.25%
D) 37.50%

Question 13

Use the following information to answer the question(s) below.
Frank Dewey Esquire from the firm of Dewey, Cheatum, and Howe, has been offered an upfront retainer of $30,000 to provide legal services over the next 12 months to Taggart Transcontinental . In return for this upfront payment, Taggart Transcontinental would have access to 8 hours of legal services from Frank for each of the next 12 months. Frank's normal billable rate is $250 per hour for legal services.
Assuming that Dewey's cost of capital is 12% EAR,then the IRR of his retainer offer is closest to:

A) -39.3%
B) -3.3%
C) 20.0%
D) 39.3%

Question 14

Use the table for the question(s) below.
Consider a project with the following cash flows:

If the appropriate discount rate for this project is 15%,then the NPV is closest to:

A) $6,000
B) -$867
C) $1,420
D) $867

Question 15

Use the information for the question(s) below.
Boulderado has come up with a new composite snowboard. Development will take Boulderado four years and cost $250,000 per year, with the first of the four equal investments payable today upon acceptance of the project. Once in production the snowboard is expected to produce annual cash flows of $200,000 each year for 10 years. Boulderado's discount rate is 10%.
The NPV profile graphs

A) the project's NPV over a range of discount rates.
B) the project's IRR over a range of discount rates.
C) the project's cash flows over a range of NPVs.
D) the project's IRR over a range of NPVs.

Question 16

Use the following information to answer the question(s) below.
Sarah Palin reportedly was paid a $11 million advance to write her book Going Rogue. The book took one year to write. In the time she spent writing, Palin could have been paid to give speeches and appear on TV news as a political commentator. Given her popularity, assume that she could have earned $8 million over the year (paid at the end of the year) she spent writing the book. Assume that she was able to write the book while simultaneously fulfilling her media commitments of appearing on TV news as a political commentator and give speeches.
Assume that once her book is finished,it is expected to generate royalties of $5 million in the first year (paid at the end of the year)and these royalties are expected to decrease by 40% per year in perpetuity.Assuming that Palin's cost of capital is 10% and given these royalties payments,the NPV of Palin's book deal is closest to:

A) $3.75 million
B) $12.20 million
C) $13.00 million
D) $13.75 million

Question 17

Use the information for the question(s) below.
Larry the Cucumber has been offered $14 million to star in the lead role of the next three Larry Boy adventure movies. If Larry takes this offer, he will have to forgo acting in other Veggie movies that would pay him $5 million at the end of each of the next three years. Assume Larry's personal cost of capital is 10% per year.
The NPV of Larry's three movie Larry Boy offer is closest to:

A) 3.5 million
B) -1.6 million
C) 1.6 million
D) -1.0 million

Question 18

Use the information for the question(s) below.
The Sisyphean Company is planning on investing in a new project. This will involve the purchase of some
new machinery costing $450,000. The Sisyphean Company expects cash inflows from this project as
detailed below:
The appropriate discount rate for this project is 16%.
The NPV for this project is closest to:

A) $176,270
B) $123,420
C) $450,000
D) $179,590

Question 19

Use the table for the question(s) below.
Consider the following two projects:

The NPV of project B is closest to:

A) 12.6
B) 23.3
C) 12.0
D) 15.0

Question 20

Use the following information to answer the question(s) below.
Sarah Palin reportedly was paid a $11 million advance to write her book Going Rogue. The book took one year to write. In the time she spent writing, Palin could have been paid to give speeches and appear on TV news as a political commentator. Given her popularity, assume that she could have earned $8 million over the year (paid at the end of the year) she spent writing the book. Assume that she was able to write the book while simultaneously fulfilling her media commitments of appearing on TV news as a political commentator and give speeches.
Assuming that Palin's cost of capital is 10%,then the NPV of her book deal is closest to:

A) $2.00 million
B) $2.20 million
C) $3.00 million
D) $3.75 million

Question 21

Which of the following statements is false?

A) The IRR investment rule states you should turn down any investment opportunity where the IRR is less than the opportunity cost of capital.
B) The IRR investment rule states that you should take any investment opportunity where the IRR exceeds the opportunity cost of capital.
C) Since the IRR rule is based upon the rate at which the NPV equals zero, like the NPV decision rule, the IRR decision rule will always identify the correct investment decisions.
D) There are situations in which multiple IRRs exist.

Question 22

Use the table for the question(s) below.
Consider the following two projects:

The internal rate of return (IRR)for project A is closest to:

A) 7.7%
B) 21.6%
C) 23.3%
D) 42.9%

Question 23

Use the following information to answer the question(s) below.
Rearden Metals is considering opening a strip mining operation to provide some of the raw materials needed in producing Rearden metal. The initial purchase of the land and the associated costs of opening up mining operations will cost $100 million today. The mine is expected to generate $16 million worth of ore per year for the next 12 years. At the end of the 12th year Rearden will need to spend $20 million to restore the land to its original pristine nature appearance.
One of the IRR for Rearden's mining operation is closest to:

A) 0%
B) 10.6%
C) 12.4%
D) 72.0%

Question 24

Use the information for the question(s) below.
Larry the Cucumber has been offered $14 million to star in the lead role of the next three Larry Boy adventure movies. If Larry takes this offer, he will have to forgo acting in other Veggie movies that would pay him $5 million at the end of each of the next three years. Assume Larry's personal cost of capital is 10% per year.
Larry should

A) reject the offer because the NPV < 0.
B) accept the offer even though the IRR < 10%, because the NPV > 0.
C) reject the offer because the IRR < 10%.
D) accept the offer because the IRR > 0%.

Question 25

Use the information for the question(s) below.
Boulderado has come up with a new composite snowboard. Development will take Boulderado four years and cost $250,000 per year, with the first of the four equal investments payable today upon acceptance of the project. Once in production the snowboard is expected to produce annual cash flows of $200,000 each year for 10 years. Boulderado's discount rate is 10%.
Calculate the IRR for the snow board project and use it to determine he maximum deviation allowable in the cost of capital estimate that leaves the investment decision unchanged.The maximum deviation allowable is closest to:

A) 11.0%
B) 0.0%
C) 2.5%
D) 1.0%

Question 26

The internal rate of return rule can result in the wrong decision if the projects being compared have

A) differences in scale.
B) differences in timing.
C) differences in NPV.
D) A and B are correct.

Question 27

Use the table for the question(s) below.
Consider the following two projects:

The internal rate of return (IRR)for project B is closest to:

A) 21.6%
B) 23.3%
C) 42.9%
D) 7.7%

Question 28

The maximum number of IRRs that could exist for project B is:

A) 3
B) 1
C) 2
D) 0

Question 29

Use the information for the question(s) below.
The Sisyphean Company is planning on investing in a new project. This will involve the purchase of some
new machinery costing $450,000. The Sisyphean Company expects cash inflows from this project as
detailed below:
The appropriate discount rate for this project is 16%.
The IRR for this project is closest to:

A) 18.9%
B) 22.7%
C) 34.1%
D) 39.1%

Question 30

Use the table for the question(s) below.
Consider the following two projects:

The internal rate of return (IRR)for project Alpha is closest to:

A) 25.0%
B) 22.2%
C) 24.5%
D) 22.7%

Question 31

Use the information for the question(s) below.
Boulderado has come up with a new composite snowboard. Development will take Boulderado four years and cost $250,000 per year, with the first of the four equal investments payable today upon acceptance of the project. Once in production the snowboard is expected to produce annual cash flows of $200,000 each year for 10 years. Boulderado's discount rate is 10%.
The IRR for Boulderado's snowboard project is closest to:

A) 10.4%
B) 10.0%
C) 11.0%
D) 15.1%

Question 32

Use the table for the question(s) below.
Consider a project with the following cash flows:

Assume the appropriate discount rate for this project is 15%.The IRR for this project is closest to:

A) 21%
B) 22%
C) 15%
D) 60%

Question 33

Use the table for the question(s) below.
Consider the following two projects:

Which of the following statements is correct?

A) You should invest in project Beta since NPV_Beta > 0.
B) You should invest in project Alpha since IRR_Alpha > IRR_Beta.
C) Your should invest i project Alpha since NPV_Alpha < 0.
D) You should invest in project Beta since IRR_Beta > 0.

Question 34

Which of the following statements is correct?

A) You should accept project A since its IRR > 15%.
B) You should reject project B since its NPV > 0.
C) Your should accept project A since its NPV < 0.
D) You should accept project B since its IRR < 15%.

Question 35

When using the internal rate of return (IRR)investment rule,we compare

A) the average return on the investment opportunity to returns on all other investment opportunities in the market.
B) the average return on the investment opportunity to returns on other alternatives in the market with equivalent risk and maturity.
C) the NPV of the investment opportunity to the average return on the investment opportunity.
D) the average return on the investment opportunity to the risk-free rate of return.

Question 36

Which of the following statements is false?

A) The IRR investment rule will identify the correct decision in many, but not all, situations.
B) By setting the NPV equal to zero and solving for r, we find the IRR.
C) If you are unsure of your cost of capital estimate, it is important to determine how sensitive your analysis is to errors in this estimate.
D) The simplest investment rule is the NPV investment rule.

Question 37

Use the following information to answer the question(s) below.
Frank Dewey Esquire from the firm of Dewey, Cheatum, and Howe, has been offered an upfront retainer of $30,000 to provide legal services over the next 12 months to Taggart Transcontinental . In return for this upfront payment, Taggart Transcontinental would have access to 8 hours of legal services from Frank for each of the next 12 months. Frank's normal billable rate is $250 per hour for legal services.
Assuming that Dewey's cost of capital is 12% EAR,then the number of potential IRRs that exist for this problem is equal to:

A) 0
B) 1
C) 2
D) 12

Question 38

Use the following information to answer the question(s) below.
Rearden Metals is considering opening a strip mining operation to provide some of the raw materials needed in producing Rearden metal. The initial purchase of the land and the associated costs of opening up mining operations will cost $100 million today. The mine is expected to generate $16 million worth of ore per year for the next 12 years. At the end of the 12th year Rearden will need to spend $20 million to restore the land to its original pristine nature appearance.
The number of potential IRRs that exist for Rearden's mining operation is equal to:

A) 0
B) 1
C) 2
D) 12

Question 39

Use the table for the question(s) below.
Consider the following two projects:

The internal rate of return (IRR)for project Beta is closest to:

A) 25.0%
B) 22.7%
C) 24.5%
D) 22.2%

Question 40

Use the information for the question(s) below.
Larry the Cucumber has been offered $14 million to star in the lead role of the next three Larry Boy adventure movies. If Larry takes this offer, he will have to forgo acting in other Veggie movies that would pay him $5 million at the end of each of the next three years. Assume Larry's personal cost of capital is 10% per year.
The IRR for Larry's three movie deal offer is closest to:

A) 3.5%
B) 1.6%
C) -3.5%
D) -1.6%

Question 41

Which of the following statements is false?

A) It is possible that an IRR does not exist for an investment opportunity.
B) If the payback period is less than a pre-specified length of time you accept the project.
C) The internal rate of return (IRR) investment rule is based upon the notion that if the return on other alternatives is greater than the return on the investment opportunity you should undertake the investment opportunity.
D) It is possible that there is no discount rate that will set the NPV equal to zero.

Question 42

Which of the following statements is false?

A) The incremental IRR investment rule applies the IRR rule to the difference between the cash flows of the two mutually exclusive alternatives.
B) When a manager must choose among mutually exclusive investments, the NPV rule provides a straightforward answer.
C) The likelihood of multiple IRRs is greater with the regular IRR rule than with the incremental IRR rule.
D) Problems can arise using the IRR method when the mutually exclusive investments have differences in scale.

Question 43

Use the table for the question(s) below.
Consider the following two projects:

The payback period for project B is closest to:

A) 2.5 years
B) 2.0 years
C) 2.2 years
D) 2.4 years

Question 44

Consider two mutually exclusive projects A & B.If you subtract the cash flows of opportunity B from the cash flows of opportunity A,then you should

A) take opportunity A if the regular IRR exceeds the cost of capital.
B) take opportunity A if the incremental IRR exceeds the cost of capital.
C) take opportunity B if the regular IRR exceeds the cost of capital.
D) take opportunity B if the incremental IRR exceeds the cost of capital.

Question 45

Which of the following statements is false?

A) When using the incremental IRR rule, you must keep track of which project is the incremental project and ensure that the incremental cash flows are initially positive and then become negative.
B) Picking one project over another simply because it has a larger IRR can lead to mistakes.
C) Problems arise using the IRR method when the mutually exclusive investments have differences in scale.
D) When the risks of two projects are different, only the NPV rule will give a reliable answer.

Question 46

Use the table for the question(s) below.
Consider the following two projects:

Assume that projects A and B are mutually exclusive.The correct investment decision and the best rational for that decision is to

A) invest in project A since NPV_B < NPV_A.
B) invest in project B since IRR_B > IRR_A.
C) invest in project B since NPV_B > NPV_A.
D) invest in project A since NPV_A > 0.

Question 47

Which of the following statements is false?

A) The payback rule is useful in cases where the cost of making an incorrect decision might not be large enough to justify the time required for calculating the NPV.
B) The payback rule is reliable because it considers the time value of money and depends on the cost of capital.
C) For most investment opportunities expenses occur initially and cash is received later.
D) Fifty percent of firms surveyed reported using the payback rule for making decisions.

Question 48

Use the table for the question(s) below.
Consider the following two projects:

The incremental IRR of Project B over Project A is closest to:

A) 12.6%
B) 23.3%
C) 1.7%
D) 17.3%

Question 49

Use the table for the question(s) below.
Consider the following two projects:

The payback period for project beta is closest to:

A) 2.9 years
B) 3.1 years
C) 2.6 years
D) 3.2 years

Question 50

Use the table for the question(s) below.
Consider a project with the following cash flows:

Assume the appropriate discount rate for this project is 15%.The payback period for this project is closest to:

A) 3
B) 2.5
C) 2
D) 4

Question 51

Use the information for the question(s) below.
The Sisyphean Company is planning on investing in a new project. This will involve the purchase of some new machinery costing $450,000. The Sisyphean Company expects cash inflows from this project as detailed below:
The appropriate discount rate for this project is 16%.
The payback period for this project is closest to:

A) 2.1 years
B) 3.0 years
C) 2 years
D) 2.2 years

Question 52

Which of the following statements is false?

A) The incremental IRR need not exist.
B) If a change in the timing of the cash flows does not affect the NPV, then the change in timing will not impact the IRR.
C) Although the incremental IRR rule can provide a reliable method for choosing among projects, it can be difficult to apply correctly.
D) When projects are mutually exclusive, it is not enough to determine which projects have positive NPVs.

Question 53

Which of the following statements is false?

A) The payback investment rule is based on the notion that an opportunity that pays back its initial investments quickly is a good idea.
B) An IRR will always exist for an investment opportunity.
C) A NPV will always exist for an investment opportunity.
D) In general, there can be as many IRRs as the number of times the project's cash flows change sign over time.

Question 54

Use the information for the question(s) below.
Larry the Cucumber has been offered $14 million to star in the lead role of the next three Larry Boy adventure movies. If Larry takes this offer, he will have to forgo acting in other Veggie movies that would pay him $5 million at the end of each of the next three years. Assume Larry's personal cost of capital is 10% per year.
Explain why the NPV decision rule might provide Larry with a different decision outcome than the IRR rule when evaluating Larry's three movie deal offer.

Question 55

Which of the following statements is false?

A) Problems can arise using the IRR method when the mutually exclusive investments have different cash flow patterns.
B) The IRR is affected by the scale of the investment opportunity.
C) Multiple incremental IRRs might exist.
D) The incremental IRR rule assumes that the riskiness of the two projects is the same.

Question 56

Use the table for the question(s) below.
Consider the following two projects:

The payback period for project Alpha is closest to:

A) 3.2 years
B) 2.9 years
C) 3.1 years
D) 2.6 years

Question 57

Use the table for the question(s) below.
Consider the following two projects:

The payback period for project A is closest to:

A) 2.0 years
B) 2.4 years
C) 2.5 years
D) 2.2 years

Question 58

Which of the following statements is false?

A) In general, the IRR rule works for a stand-alone project if all of the project's positive cash flows precede its negative cash flows.
B) There is no easy fix for the IRR rule when there are multiple IRRs.
C) The payback rule is primarily used because of its simplicity.
D) No investment rule that ignores the set of alternative investment alternatives can be optimal.

Question 59

You are trying to decide between three mutually exclusive investment opportunities.The most appropriate tool for identifying the correct decision is

A) NPV.
B) Profitability index.
C) IRR.
D) Incremental IRR.

Question 60

Use the following information to answer the question(s) below.
Rearden Metals is considering opening a strip mining operation to provide some of the raw materials needed in producing Rearden metal. The initial purchase of the land and the associated costs of opening up mining operations will cost $100 million today. The mine is expected to generate $16 million worth of ore per year for the next 12 years. At the end of the 12th year Rearden will need to spend $20 million to restore the land to its original pristine nature appearance.
The payback period for Rearden's mining operation is closest to:

A) 5.00 years
B) 6.00 years
C) 6.25 years
D) 6.50 years

Question 61

Use the table for the question(s) below.
Consider two mutually exclusive projects with the following cash flows:

You are considering using the incremental IRR approach to decide between the two mutually exclusive projects A & B.How many potential incremental IRRs could there be?

A) 3
B) 0
C) 2
D) 1

Question 62

Use the table for the question(s) below.
Consider the following two projects:

The profitability index for project B is closest to:

A) 23.34
B) 12.64
C) 0.17
D) 0.12

Question 63

Use the table for the question(s) below.
Consider the following list of projects:

Assuming that your capital is constrained,which investment tool should you use to determine the correct investment decisions?

A) Profitability Index
B) Incremental IRR
C) NPV
D) IRR

Question 64

Use the table for the question(s) below.
Consider the following two projects:

Assume that projects Alpha and Beta are mutually exclusive.Which of the following statements is true regarding the investment decision tools' suitability for deciding between projects Alpha & Beta.

A) The incremental IRR should not be used since the projects have different lives.
B) The incremental IRR should not be used since the projects have different discount rates
C) The incremental IRR should not be used since the projects have different cash flow patterns.
D) Both the NPV and incremental IRR approaches are appropriate to solve this problem.

Question 65

You are opening up a brand new retail strip mall.You presently have more potential retail outlets wanting to locate in your mall than you have space available.What is the most appropriate tool to use if you are trying to determine the optimal allocation of your retail space?

A) IRR
B) Payback period
C) NPV
D) Profitability index

Question 66

Use the table for the question(s) below.
Consider the following two projects:

The profitability index for project A is closest to:

A) 0.12
B) 21.65
C) 0.17
D) 12.04

Question 67

Use the table for the question(s) below.
Consider the following list of projects:

Assuming that your capital is constrained,which project should you invest in last?

A) Project A
B) Project I
C) Project D
D) Project C

Question 68

Use the table for the question(s) below.
Consider the following list of projects:

Assuming that your capital is constrained,so that you only have $600,000 available to invest in projects,which project should you invest in and in what order?

A) CBFH
B) CBGF
C) BCFG
D) CBFG

Question 69

Which of the following statements is false?

A) The profitability index measures the value created in terms of NPV per unit of resource consumed.
B) The profitability index is the ratio of value created to resources consumed.
C) The profitability index can can be easily adapted for determining the correct investment decisions when multiple resource constraints exist.
D) The profitability index measures the "bang for your buck."

Question 70

Which of the following statements is false?

A) If there is a fixed supply of resource available, you should rank projects by the profitability index, selecting the project with the lowest profitability index first and working your way down the list until the resource is consumed.
B) Practitioners often use the profitability index to identify the optimal combination of projects when there is a fixed supply of resources.
C) If there is a fixed supply of resources available, so that you cannot undertake all possible opportunities, then simply picking the highest NPV opportunity might not lead to the best decision.
D) The profitability index is calculated as the NPV divided by the resources consumed by the project.

Question 71

Use the table for the question(s) below.
Consider a project with the following cash flows:

Assume the appropriate discount rate for this project is 15%.The profitability index for this project is closest to:

A) .14
B) .22
C) .60
D) .15

Question 72

Use the table for the question(s) below.
Consider the following list of projects:

Assuming that your capital is constrained,which project should you invest in first?

A) Project C
B) Project G
C) Project B
D) Project F

Question 73

Assuming that the discount rate for project A is 16% and the discount rate for B is 15%,then given that these are mutually exclusive projects,which project would you take and why?

Question 74

Use the table for the question(s) below.
Consider the following two projects:

When choosing between projects,an alternative to comparing their IRRs is

A) to compute the incremental IRR, which tells us the discount rate at which it becomes profitable to switch from one project to the other.
B) to compute the incremental payback period, which tells us the number of years during which it becomes profitable to switch from one project to the other.
C) to compute the incremental NPV, which tells us the discount rate at which it becomes profitable to switch from one project to the other.
D) There is no alternative selection criterion to comparing IRRs.

Question 75

Use the table for the question(s) below.
Consider the following two projects:

The maximum number of incremental IRRs that could exist for project B over project A is:

A) 1
B) 2
C) 0
D) 3

Question 76

Use the table for the question(s) below.
Consider two mutually exclusive projects with the following cash flows:

If the discount rate for project A is 16%,then what is the NPV for project A?

Question 77

Use the table for the question(s) below.
Consider the following two projects:

Assume that projects Alpha and Beta are mutually exclusive.The correct investment decision and the best rational for that decision is to

A) invest in project Beta since NPV_Beta > 0.
B) invest in project Alpha since NPV_Beta < NPV_Alpha.
C) invest in project Beta since IRR_B > IRR_A.
D) invest in project Beta since NPV_Beta > NPV_Alpha > 0.

Question 78

Use the table for the question(s) below.
Consider the following list of projects:

Assuming that your capital is constrained,what is the fifth project that you should invest in?

A) Project H
B) Project I
C) Project B
D) Project A

Question 79

What is the incremental IRR for project B over project A? Would you feel comfortable basing your decision on the incremental IRR?

Question 80

Use the table for the question(s) below.
Consider two mutually exclusive projects with the following cash flows:

If the discount rate for project B is 15%,then what is the NPV for project B?