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1 (2 points) A local government awards a landscaping company a contract worth $1.2 million per year for five years for maintaining public parks. The

1 (2 points) A local government awards a landscaping company a contract worth $1.2 million per year for five years for maintaining public parks. The landscaping company will need to buy some new machinery before they can take on the contract. If the cost of capital is 7%, what is the most that this equipment could cost if the contract is to be worthwhile for the landscaping company? Question 1 options: A) $4.55 million B) $4.61 million C) $4.92 million D) $5.26 million Question 2 (2 points) A company has identified the following investments as looking promising. Each requires an initial investment of $1.2 million. Which is the best investment? Question 2 options: A) a perpetuity that generates a cash flow at the end of year 1 of $100,000, has a growth rate of 1.25%, and a cost of capital of 10% B) a perpetuity that generates a cash flow at the end of year 1 of $800,000, has a growth rate of 2.25%, and a cost of capital of 12% C) an investment that generates a cash flow of $400,000 at the end of each of the next five years, when the cost of capital is 6% D) an investment that generates a cash flow of $200,000 at the end of each of the next ten years, when the cost of capital is 6% Question 3 (2 points) What is the net present value of a project if the required rate of return is 12 percent? The cash flows, in order, are -$42,398 (initial cost), $13,407 (year 1 CF), $21,219 (year 2 CF) and $17,800 (year 3 CF). Question 3 options: A) -$1,574.41 B) -$1,208.19 C) -$842.12 D) $729.09 E) $1,311.16 Question 4 (2 points) An investment has a required return of 13 percent. The cash flows, in order, are -$42,000 (initial cost), $16,500 (year 1 CF), $28,400 (year 2 CF) and $7,500 (year 3 CF). Based on IRR, should this project be accepted? Why or why not? Question 4 options: A) No; The IRR exceeds the required return by about 0.06 percent. B) No; The IRR is less than the required return by about 0.94 percent. C) Yes; The IRR exceeds the required return by about 0.06 percent. D) Yes; The IRR exceeds the required return by about 0.94 percent. E) Yes; The IRR is less than the required return by about 0.06 percent. Question 5 (2 points) The internal rate of return: Question 5 options: A) may produce multiple rates of return when cash flows are conventional. B) is best used when comparing mutually exclusive projects. C) is rarely used in the business world today. D) is principally used to evaluate small dollar projects. E) is easy to understand

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