4

a.

If the NPV (Net Present Value) of a project is positive, then the project's IRR (Internal Rate of Return) ____________ the required rate of return/cost of capital of the project.

I.

cannot be determined without actual cash flows

II.

could be greater than or less than

III.

must be less than

IV.

none of the above.

V. must be greater than

b.

Consider the following two projects:

Time Cash Flows

A B

0 -$4,000 -$4,000

1 $2,003 $0

2 $2,003 $0

3 $2,003 $0

4 $2,003 $10,736

Assuming a 14 percent discount rate, which project would you prefer?

Hint: Use NPV method

	I.	Project A, because it has a higher IRR
	II.	Project B, because it has a higher IRR
		III. Project A, because it has a higher NPV
	IV.	Project B, because it has a higher NPV
	V.	None of the above