1) Two mutually exclusive projects A and B have IRRs of 15% and 20% respectively. The NPV profits of the two projects intersect at 12%. What is the IRR of the incremental project (A B)? a) 12% b) 20% c) 15% d) 5% e None of the above

2) Gandhi Construction Company builds condos for sale and is deciding whether or not to go ahead with an investment in a new condo construction project. This project is adjacent to a block of condos built last year, which are still not entirely sold. Which of the following should not be treated as part of the new project's cashflows in calculating its NPV?

a) The cost of a survey conducted last year by the company to assess the potential market demand for the condos to be built under the new project before the decision to accept or reject the new project has to be made.

b) Potential effect on the sales of condos built last year.

c) Capital expenditure on an electronic pump that will be needed for the new project.

d) An old equipment with a substantial market value to be used in the new project.

3) An Ontario car dealer is expanding into the Maritimes by setting up a new dealership in the region on a plot of land that was purchased for $100,000 but has a current market value of $500,000. Capital gains are taxable at half the regular 40% tax rate of the dealership. How much of the initial investment in the setup of the dealership can be assigned to the plot of land to be used? a) $100,000 b) $500,000 c) $400,000 d) $420,000

e) None of the above

4) The NPV and IRR rankings of projects can be different because of the different assumptions about the rates of return earned on the re-investment of projects' future cashflows.

True

False