Suppose that you are the CFO of a corporation that faces a project with an investment of $1000 and payments of $210 at the end of years 1 to 6. Calculate the IRR.

Note: For

A. 1.65% B. 5.45% C. 7.03% D. 10.30% E. 15.22% 

Problem 2

the midterm learn how to do this with your calculator.

Calculate the IRR with a non-consecutive cash flow

Suppose that you are the CFO of a corporation that faces a project with an investment of $1000 and payments of $200 at the end of years 1 to 5, and a final payment of $220 in 7 years from now. Calculate the IRR.

A. 5.66% B. 5.70% C. 5.92% D. 7.25% E. It is not possible to calculate the IRR 

Problem 3 Calculate the IRR 

Suppose that you are the CFO of a corporation that faces a project with the following cash flow: t=0 +$1000 t=1 -$3000

t=2 +$2500 Calculate the IRR. 

A. 4.66% B. 4.70% C. 4.92% D. It is not possible to calculate the IRR (there is no real value) E. None of the above options.

Problem 4 Applying the IRR Rule 

Suppose that a project has an IRR of 4%. If the rate of interest that face the corporation during the life of the project is 10%, then:

A. It is good for the corporation to accept the project. B. It is not good for the corporation to accept the project. C. With the above information we cannot know is if good or is not good. D. None of the above options.

Problem 5 Calculating the IRR 

Suppose that a project has an initial investment and a payment at the end of year 1, another payment at the end of year 2, and a final investment at the end of year 3. At most, how many possible different IRRs can exist?

1

A. 2 B. 1 C. 0 D. With the above information we cannot answer the question. E. None of the above options

Problem 6

Given the following cash flows for project A: C0 = -1,000, C1 = +600, C2 = +400, and C3 = +1,500, calculate the payback period.

A. One year B. Two years C. Three years D. Cannot be determined E. None of the above options 

Problem 7

If an investment project (normal project) has an IRR equal to the cost of capital, the NPV for that project is:

A. Positive B. Negative C. Zero D. Unable to determine E. None of the above options 

Problem 8

The profitability index is the ratio of the: 

A. Future value of cash flows to investment B. Net present value of cash flows to investment C. Net present value of cash flows to IRR D. Present value of cash flows to IRR E. None of the above options 

Problem 9

The following table gives the available projects (in $millions) for a firm.

ABCDEFG 5.0 4.0 5.0 1.0 2.0 7.0 8.0 Initialinvestment 1.5 -0.5 1.0 0.5 0.5 1.0 1.0 NPV

The firm has only 20 million to invest. What is the maximum NPV that the company can obtain?

A. 3.5 B. 4.0 C. 4.5 D. 5.0 E. 5.5 

Problem 10

What is the profitability index of an investment with cash flows in years 0 thru 4 of -340, 120, 130, 153, and 166, respectively, and a discount rate of 16%?

A. 0.15 B. 0.22 C. 0.35 D. 0.42 E. 0.55

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