QUESTION 46

Computer Corporation identifies an investment opportunity that will yield end of year cash flows of $30,000 in both Year 1 and Year 2, $35,000 in both Year 3 and Year 4, and $40,000 in Year 5. The investment will cost the firm $100,000 today, and the firm's required rate of return is 10 percent. What is the net present value for this investment?

		$23,653.26
		$27,104.46
		$44,226.00
		$70,000.00
		$35,768.45

2 points

QUESTION 47

Which of the following are correct?

A. The main reason that the net present value (NPV) method is regarded as being conceptually superior to the internal rate of return (IRR) method for the purpose of evaluating mutually exclusive investments, is that mutually exclusive projects have multiple internal rates of return (IRRs).

B. Project A has a pattern of large cash inflows in the early years of its life, whereas Project B generates a majority of its cash inflows in the later years of its life. Currently, both projects have the same net present value (NPV). If the firm's required rate of return increases, other things held constant, Project B will be more preferable than Project A after the rate change.

C. There exists an internal rate of return (IRR) solution for each time the direction of cash flows associated with a project is interrupted, that is, each time outflows change to inflows.

		A
		B
		C
		A and C
		B and C

2 points

QUESTION 48

Which of the following are NOT correct?

A. The net present value (NPV) and internal rate of return (IRR) methods will always lead to the same investment decisions when mutually exclusive projects are being evaluated.

B. Suppose a firm is evaluating a capital budgeting project using the net present value (NPV) technique. If the firm's required rate of return increases, the project's NPV will decrease.

C. Suppose a firm is evaluating a capital budgeting project using the internal rate of return (IRR) technique. If the firm's required rate of return increases, the project's IRR will decrease.

		A
		B
		C
		A and B
		A and C

2 points

QUESTION 49

Door Inc. is considering a project with a cost of $1,000 at Year 0 and inflows of $300 at the end of Years 1-5. Door Inc's cost of capital is 10 percent. What is the project's modified IRR (MIRR)?

		10.04%
		12.87%
		15.23%
		18.34%
		20.72%

2 points

QUESTION 50

A company. is planning to purchase a new machine. The initial investment outlay is expected to be $40,000, and the annual supplemental operating cash flows that the machine is expected to generate during its three-year life are $11,000, $15,000, and $18,000, respectively. The company's required rate of return is 9 percent. Which of the following statements is correct about the machine's net present value and the decision the company should make?

		Accept the project because NPV = $4,000
		Reject the project because NPV = $3,384
		Accept the project because NPV = $4,382
		Reject the project because NPV = $16,981
		Accept the project because NPV = $76,616