1. If Project K costs $30,000, its expected net cash inflows are $6,000 per year for 8 years,
and its WACC is 10%, what is the project’s NPV?
a. $1,942 b. $2,010 c. $2,182 d. $2,243
2. A firm with a WACC of 8% is considering the following mutually exclusive projects:
0 1 2 3 4 5__
A -$400 $55 $55 $55 $225 $225
B -$600 $300 $300 $50 $50 $49
Which project(s) would you recommend?
a. Accept Project A only.
b. Accept Project B only.
c. Accept Projects A and B.
d. Accept neither Project A nor B.
Use the following information to answer questions #3 thru #6 below:
Year: 0 1 2 3 4 5
Project A Cash Flows: -4,000 1,000 800 1,200 1,500 2,000
Project B Cash Flows: -4,000 1,000 1,500 1,000 600 500
The cost of capital for both projects is 12%.
3. What is the NPV for Project B?
a. -$96 b. -$487 c. -$535 d. $135
4. What is the IRR for Project A?
a. 17.8% b. 14.2% c. 12.7% d. 16.1%
5. What is the payback for Project B?
a. 4.1 years b. 3.8 years c. 3.5 years d. 2.8 years
6. If Projects A and B are independent, which project(s) should be accepted?
a. A only b. B only c. Both A and B d. Neither A nor B. Calculate the Modified IRR for the following cash flows if the cost of capital is 10%:
Year: 0 1 2 3
Cash Flows: -1,200 600 600 300
a. 4.9% b. 8.7% c. 12.0% d. 10.6%
8. What is the “crossover rate” for the NPV profile of Projects Y and Z?
Year: 0 1 2 3
Project Y: -100 50 40 30
Project Z: -100 20 51 53
a. 3.8%
b. 4.7%
c. 6.2%
d. 7.8%
e. cannot be determined with the information given
9. In question #8 above, if Projects Y and Z are mutually exclusive, and the cost of capital is
6%, which project(s) should be accepted?
a. Accept Project Y only.
b. Accept Project Z only.
c. Accept Projects Y and Z.
d. Accept neither Project Y nor Z.
10. Which of the following statements is true?I. If the IRR exceeds the cost of capital, the NPV is negative.
II. If the IRR equals the cost of capital, the NPV is $0.
III. If the NPV is negative, the IRR must be less than 0.
a. I only b. II only c. I and II d. I, II and III e. II and III