Question 1

1. Suppose a particular investment project will require an initial cash outlay of $1,000,000 and will generate a cash inflow of $500,000 in each of the next three years. What is the projects NPV assuming that the companys discount rate is 15%? (Calculate to four decimal places). Should the company accept this project?

		a.	- 100,000.0000; reject the project
		b.	141,612.5586; accept the project
		c.	- 100,000.0000; accept the project
		d.	141,612.5586; reject the project

Question 2

1. Should a firm invest in projects with NPV = $0?

		a.	No
		b.	The firm is indifferent between accepting or rejecting projects with zero NPVs
		c.	Yes

Question 3

1. Given positive discount rate, discounted payback period will be shorter than undiscounted payback period.

True

False

Question 4

1. Suppose a particular investment project will require an initial cash outlay of $1,000,000 and will generate a cash inflow of $500,000 in each of the next three years. What is the projects IRR? (Calculate to four decimal places). Suppose a companys hurdle rate is 15%, should it accept the project?

a.

23.3752%; accept the project

b.

15.0324%; accept the project

c.

23.3752%; reject the project

d.

15.0324%; reject the project

Question 5

1.

Nader International is considering investing in asset A, whose initial outlay, annual cash flows, and annual depreciation shown in the table below for assets assumed five-year lives.

	Asset A
Initial Outlay (CFo)	$200,000
Year (t)	Cash Flow (CFt)	Depreciation
1	$70,000	$40,000
2	80,000	40,000
3	90,000	40,000
4	90,000	40,000
5	100,000	40,000

What is the accounting rate of return (ARR) for this asset?

	a.	21%
	b.	46%
	c.	35%

Question 6

1. Given that they will be both eventually profitable, a $ 10 million investment in an automobile plant compared to that in a retail store will have a longer payback period.

True

False

Question 7

1. What is the NPV of the Commerce Companys following project that has the following cash flows if the discount rate is 7%?

Year	Cash Flow
0	-$10,000
1	$ 2,000
2	$ 3,000
3	$ 4,000
4	$ 5,000
5	$ 6,000

a.

$5,847.06

b.

$9,347.00

c.

$6,921.30

d.

$10,000.00

Question 8

1. Consider two projects, A and B

Project A

Year 0 1 2 3

Cash Flow -100 100 0 0

Project B

Year 0 1 2 3

Cash Flow -100 10 10 1,000

Project A has clearly shorter payback period as well as higher return on investment.

True

False

Question 9

1. What is the payback period of the Commerce Companys following project that has the following cash flows:

Year	Cash Flow
0	-$10,000
1	$ 2,000
2	$ 3,000
3	$ 4,000
4	$ 5,000
5	$ 6,000

a.

4.2 years

b.

3.2 years

c.

2.7 years

d.

1.5 years

1.

2. What is the IRR of the Commerce Companys following project that has the following cash flows?

	Year	Cash Flow
	0	-$10,000
	1	$ 2,000
	2	$ 3,000
	3	$ 4,000
	4	$ 5,000
	5	$ 6,000
	a.	7.00%
	b.	42.85%
	c.	15.24%
	d.	23.29%