Question 1If you had to select one criterion for choosing amongst projects, which would you select?

1.Question 1If you had to select one criterion for choosing amongst projects, which would you select? Payback

 

Internal Rate of Return

Return on Investment

Either Payback or Internal Rate of Return

Net Present Value

1 point

2.Question 2

You may use a spreadsheet like Excel to help you find the solution to this question.

How much money would you have to put in the bank today, assuming that the bank account paid interest at the rate of 5% per year, in order to be able to withdraw $10,000 at the end of Year 1, $20,000 at the end of Year 2 and $30,000 at the end of Year 3, and have nothing left in the account after the last withdrawal (round to the nearest dollar)?

$45,560

$60,000

$70,125

$53,580

None of these are true

1 point

3.Question 3

Suppose the bank paid you interest at the rate of 15% per year. What amount of money would you have to put in the bank today, in order to be able to withdraw $10,000 at the end of Year 1, $20,000 at the end of Year 2 and $30,000 at the end of Year 3, and have nothing left in the account after the last withdrawal (round to the nearest dollar)?

$60,000

None of these are true

$32,154

$43,544

$71,125

1 point

4.Question 4

Suppose that you wanted to be able to withdraw $10,000 at the end of Year 3 from a bank account that will pay you 5% interest in the first year, 7% interest in the second year, and 10% interest in the third year. What amount of money would you have to put in the bank today to be able to make that withdrawal at the end of Year 3 and have nothing left in the account after that withdrawal (round to the nearest dollar)?

$8,092

$7,513

$6,920

None of these are true

$4,420

1 point

5.Question 5

Suppose your firm is considering investing in a project that requires an initial investment of $200,000 at Year 0, and returns cash flows at the end of Years 1 to 3 of $50,000, $100,000 and $150,000 respectively. Further, assume your company’s cost of capital is 15%. What is the net present value of the project (round to the nearest dollar)?

-$25,123

$17,720

$100,000

None of these are true

$12,970

1 point

6.Question 6

Suppose your firm is considering investing in a project that requires an initial investment of $200,000 at Year 0, and returns cash flows at the end of Years 1 to 3 of $50,000, $100,000 and $150,000 respectively. Further, assume your company’s cost of capital is 15%. What is the internal rate of return of the project (round your IRR to the nearest tenth of a percent, e.g., 10.1%)?

22.6%

19.4%

15.0%

None of these are true

24.1%

1 point

7.Question 7

Suppose your firm is considering investing in a project that requires an initial investment of $200,000 at Year 0, and returns cash flows at the end of Years 1 to 3 of $50,000, $100,000 and $150,000 respectively. Further, assume your company’s cost of capital is 15%. In what year does payback occur for the project?

Year 2

Year 0

Year 1

Payback is never reached

Year 3

1 point

8.Question 8

Suppose your firm is considering investing in a project that requires an initial investment of $500,000 at Year 0, and returns cash flows at the end of Years 1 to 5 of $20,000, $40,000, $60,000, $80,000 and $350,000 respectively. Further, assume your company’s cost of capital is 8%. What is the net present value of the project (round to the nearest dollar)?

None of these are true

$90,000

-$102,551

$0

-$25,552

1 point

9.Question 9

Suppose your firm is considering investing in a project that requires an initial investment of $500,000 at Year 0, and returns cash flows at the end of Years 1 to 5 of $20,000, $40,000, $60,000, $80,000 and $350,000, respectively. Further, assume your company’s cost of capital is 8%. What is the internal rate of return of the project (round your IRR to the nearest tenth of a percent, e.g., 10.1%)?

9.4%

2.3%

None of these are true

0.0%

7.9%

1 point

10.Question 10

This question relates to a comparison of the projects described in questions 5 and 8.

Refer to the projects in questions 5 and 8. Which of the following best describes the actions you would take based on your analysis?

Reject the project in question 5 and accept the project in question 8

Accept both projects

Reject both projects

Accept the project in question 5 and reject the project in question 8

1 point

 
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