5. Which one of the following statements is correct? a. The net present value is a measure of profits expressed in today's dollars. b. The net present value is positive when the required return exceeds the internal rate of return. c. If the initial cost of a project is increased, the net present value of that project will also increase. d. If the internal rate of return equals the required return, the net present value will equal zero 6. Given the following cash flows for a capital project and a required rate of return of 8 percent, calculate the NPV and IRR Year 0 5 Cash flow (S)50,000 15,000 15,000 20,000 10,000 5,000 NPV a. $1,905 b. $1,90:5 c. $3,379 d. $3,379 IRR 10.9% 26.0% 10.9% 26.0% 7. Projects 1 and 2 have similar initial outlays, although the patterns of future cash flows are different. The cash flows, along with the NPV and IRR for the two projects, are shown in the following table. For both projects, the required rate of return is 10 percent. The two projects are mutually exclusive What is the appropriate investment decision? Cash Flows NPV IRR Year Project 1: 0 20 Project 2: -50 a. Invest in Project 1 because it has the higher IRR b. Invest in Project 2 because it has the higher NPV c. Invest half in each project d. Invest in both projects 0 1 4 20 100 $13.40 $18.30 21.86% 18.92% 20 20 0 0 0 8. Your firm is considering two mutually exclusive projects, code-named X and Y, that would each require an initial cash outflow of $10,000. They would generate the following incremental, after-tax, operating cash flow Project X 5,000 4,000 3,000 Project Y 3,000 4,000 6,000 Year 1 Year 2 Year 3 If the firm's required rate of return is 14 percent, which would you select? a. Project X because it has the shorter payback period b. Project X because it has the higher net present value c. Project Y because it has the higher internal rate of return d. Neither project because neither adds value to the firm