Q2

a)

Which of the following can cause a project to have multiple IRRs?

	a.	With mutually exclusive investments.
	b.	A project has negative cash flows in the first three years, but positive cash flows thereafter.
	c.	The project has a large initial outlay.
	d.	A ten-year project has a negative cash flow in the last year of the project's life.
	e.	Whenever project cash flows are conventional.

b)

When the present value of the cash inflows exceeds the initial cost of a project, then the project should be:

	a.	Rejected because the net present value is negative.
	b.	Accepted because the internal rate of return is positive.
	c.	Accepted because the profitability index is greater than 1.
	d.	Accepted because the profitability index is negative.
	e.	Rejected because the internal rate of return is negative.

c)

An investment is acceptable if it's IRR:

	a.	Is less than the required return.
	b.	Exceeds the required return.
	c.	Is exactly equal to zero.
	d.	Is exactly equal to its net present value (NPV).
	e.	Is exactly equal to 100 %.

d)

Which capital investment evaluation technique offers the following advantages? (1) Easy to calculate; (2) Needed information will usually be available.

	a.	Discounted payback
	b.	Payback period
	c.	NPV
	d.	AAR
	e.	IRR

e)

Without using formulas, provide a definition of average accounting return (AAR).

	a.	A project analysis tool that measures the acceptability of a project by determining the amount of profit that can be expected based on an investment made.
	b.	A ranking method used to assess projects. PI greater than 1 signify positive NPV projects, while PI less than 1 signify negative NPV projects.
	c.	A project analysis tool that measures the acceptability of a project through the difference between a project's initial investment and whether the present value of its cash flow will repay the investment.
	d.	A project analysis tool that determines the amount of time required for an investment to generate cash flows to recover its initial cost.
	e.	A project analysis tool that measures the acceptability of a project by determining the length of time required for an investment's discounted cash flows to equal its initial cost.