Finance 15 Questions Assignment 2015

| June 5, 2016

Question
Question 1

ABC Inc. is considering a project with an initial cost of $1,406. The project will not produce any cash flows for the first three years. Starting in year four, the project will produce cash inflows of $730 a year for three years. This project is risky, so the firm has assigned it a discount rate of 18 percent. What is the project’s net present value?
Question 2

Which of the following is the correct definition of Internal Rate of Return (IRR)?
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IRR is the project’s current market rate of return.

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IRR is the same as Average Accounting Rate of Return.

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

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IRR is the rate at which the Net Prsent Value (NPV) equals Initial Cost.

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

Question 3

What is the profitability index of a project with the following cash flows if the discount rate is 10 percent?
Year

CFs

0

-343

1

233

2

344

3

201

4

379

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.

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Question 4

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

CFs

0

-$435

1

$254

2

$55

3

$153

4

$130

Question 5

Which one of the following is generally considered to be the best form of analysis if you have to select a single method to analyze a variety of investment opportunities?
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Internal rate of return

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Modified Internal rate of return

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Profitability index

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Net present value

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Payback

Question 6

What is the net present value of a project with the following cash flows if the discount rate is 9 percent?
Year

CFs

0

-652

1

293

2

297

3

333

4

116

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Question 7

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

CFs

0

-723

1

652

2

691

3

106

4

241

Question 8

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

CFs

0

-659

1

1,100

2

368

3

348

Question 9

What is the net present value of a project with the following cash flows if the discount rate is 19 percent?
Year

CFs

0

-1,023

1

218

2

302

3

304

4

422

Question 10

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

Year

CFs

0

-$183

1

$50

2

$68

3

$51

4

$348

Question 11

Which one of the following indicates that a project is expected to create value for its owners?
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Modified Internal rate of return (MIRR) that is less than the required rate of return

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Payback period greater than the cut-off period

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Positive net present value (NPV)

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Profitability index less than 1.0

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Internal rate of return (IRR) that is less than the required rate of return

Question 12

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

Year

CFs

0

-800

1

100

2

200

3

300

4

400

Question 13

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

Question 14

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

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Net present value

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Payback

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Internal rate of return

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Profitability index

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Modified Internal rate of return

Question 15

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

-800

1

100

2

200

3

300

4

400

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