1. If a net present value analysis for a normal project gives an NPV greater than zero, an internal rate of return calculation on the same project would yield an internal rate of return ________________ the required rate of return for the firm.
A. Greater than
B. Less than
C. Equal to
D. None of the above
2. When a project has multiple internal rates of return:
A. The analyst should choose the highest rate to compare with the firm’s cost of capital
B. The analyst should choose the lowest rate to compare with the firm’s cost of capital
C. The analyst should choose the rate that seems most “reasonable”, given the project’s cash flows, to compare with the firm’s cost of capital.
D. The analyst should compute the project’s net present value and accept the project if its NPV is greater than $0
3. An investment project requires a current investment of $100,000. The project is expected to generate annual operating cash inflows of $28,000 for the next 5 years and have a $2,000 cash outflow in year 6. The required return is 12%. Determine the net present value for the project.
A. 934
B. 1,947
C. -80
D. Cannot be determined
4. In the above question, what is IRR?
A. 11.96%
B. 12.77%
C. 3.6%
D. IRR cannot be determined
5. In the above question, what is the payback period?
A. 3.57 years
B. 2.51 years
C. 4.23 years
D. None of the above