1. Wassily Corporation is considering an investment in a new facility. The facility will require a $200,000 initial investment and is expected to provide annual cash flows of $52,000 for the next 5 years. Assume that the firm has a 10% cost of capital.
What would Wassily Corporation decide using IRR analysis?
a. IRR is between 10% and 11%. Accept the project.
b. IRR is between 9% and 10%. Reject the project.
c. Not enough information is given to determine an answer.
d. IRR is between 7% and 8%. Accept the project.
e. IRR is between 9% and 10%. Accept the project.
2. Financial managers using the efficient frontier to aid in decision-making should consider all of the following guidelines except which one?
a. Minimize risk for a given level of return.
b. Maximize return for a given level of risk.
c. Prefer the project on the far right side of the efficient frontier because it offers the highest return.
d. Select the projects on the leftmost and uppermost sector of the possible projects.