A company is considering a project which will initially cost

$155000.

It believes this project will generate a stream of cash flows of

$40000

per annum forever.

If the discount rate for this project is

9%,

what is the project's NPV?

Formula:

A.

NPV=(40000/0.09)

- 155000

B.

NPV=(40000/0.09)

-

(155000/0.09)

C.

NPV=(155000/0.09)

- 40000

D.

NPV=(155000/0.09)

-

(40000/0.09)

Answer (round to the nearest dollar):

$nothing

What is the NPV rule?

A.

Accept project if NPV>0 for independent projects.

B.

Accept project if NPV<0 for independent projects.

C.

Accept project if NPV<0 for mutually exclusive projects.

D.

Accept project if NPV>0 for mutually exclusive projects.

Should the project be accepted according to the NPV rule?

A.

No, because NPV>0

B.

No, because NPV<0

C.

Yes, because NPV<0

D.

Yes, because NPV>0

What is the IRR of the project? (Use 2 d.p)

nothing%

Should the project be accepted if the cost of capital is

9%

?

A.

No, because cost of capital > IRR

B.

No, because cost of capital < IRR

C.

Yes, because cost of capital > IRR

D.

Yes, because cost of capital < IRR