01 Jan Enter your answer rounded

QUIZ 1

Question 1

Which of the following is the definition of Internal Rate of Return (IRR)?

Answers:

IRR is the rate at which the Net Present Value (NPV) equals present value of all future cash flows.

IRR is the rate of return required by project’s investors.

IRR is the rate at which the present value of all future cash flows equals initial outlay.

IRR is the rate at which Net Present Value (NPV) equals initial outlay.

IRR is the same as Average Accounting Rate of Return.

Question 2

Which one of the following indicates that a project is expected to create value for its owners?

NPV that is greater than zero

Question 3

What is the Modified Internal Rate of Return (MIRR) for the following cash flows? Assume that the required rate of return is 4%

Year CFs

0 -1,000

1 100

2 200

3 350

4 800

Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 4

What is the Internal Rate of Return (IRR) for the following cash flows?

Year CFs

0 -1,000

1 100

2 200

3 350

4 800

Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 5

ABC Inc. is considering a project with an initial cost of $1,220. The project will not produce any cash flows for the first four years. Starting in year five, the project will produce cash inflows of $845 a year for four years. If the discount rate of 18.3 percent, what is the project’s net present value?

Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Question 6

Suppose a project has initial outlay of $12,000 and after-tax cash flows of $2,000 each year for first three years and $4,000 each year for the following three years. If the required rate of return is 6.50%, what is the equivalent annual annuity?

Enter your answer rounded off to two decimal points.

Question 7

A project has the following cash flows. What is the payback period?

Year CFs

0 -$472

1 $243

2 $74

3 $265

4 $106

Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

Question 8

Which one of the following methods of analysis ignores the time value of money?

Net present value

Modified Internal rate of return

Profitability index

Internal rate of return

Payback

Question 9

What is the net present value of a project with the following cash flows if the discount rate is 16 percent?

Year CFs

0 -811

1 972

2 389

3 299

Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Question 10

What is the profitability index of a project with the following cash flows if the discount rate is 18 percent?

Year CFs

0 -210

1 164

2 376

3 409

4 176

Enter your answer rounded off to two decimal points. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

Question 11

What is the profitability index of a project with the following cash flows if the discount rate is 19 percent?

Year CFs

0 -928

1 955

2 577

3 389

Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

Question 12

What is the profitability index of a project with the following cash flows if the discount rate is 14 percent?

Year CFs

0 -1,554

1 304

2 695

3 516

4 324

Enter your answer rounded off to two decimal points. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

PI = PV of all Future Cash Flows/|Initial Outlay|

Question 13

A project has the following cash flows. What is the payback period?

Year CFs

0 -$176

1 $38

2 $65

3 $43

4 $337

Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

Question 14

What is the net present value of a project with the following cash flows if the discount rate is 6 percent?

Year CFs

0 -498

1 110

2 202

3 106

4 437

Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Question 15

What is the net present value of a project with the following cash flows if the discount rate is 11 percent?

Year CFs

0 -675

1 306

2 290

3 160

4 120

Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.