# Fin Exam

**Topics:**Net present value, Internal rate of return, Capital budgeting

**Pages:**6 (1062 words)

**Published:**March 5, 2013

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A project has initial costs of $3,000 and subsequent cash inflows in years 1 ? 4 of $1350, 275, 875, and 1525. The company's cost of capital is 10%. Calculate the payback period for this project. Select one:

A. 3.33 years

B. 3.67 years

C. 4.00 years

D. 4.25 years

Question 2

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A project has initial costs of $3,000 and subsequent cash inflows in years 1 ? 4 of $1350, 275, 875, and 1525. The company's cost of capital is 10%. Calculate NPV for this project. Select one:

A. $154

B. $174

C. $275

D. $325

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A project has initial costs of $3,000 and subsequent cash inflows in years 1 ? 4 of $1350, 275, 875, and 1525. The company's cost of capital is 10%. Calculate IRR for this project. Select one:

A. 10.00%

B. 11.75%

C. 12.25%

D. 13.15%

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A project has initial costs of $3,000 and subsequent cash inflows in years 1 ? 4 of $1350, 275, 875, and 1525. The company's cost of capital is 10%. Calculate MIRR for this project. Select one:

A. 11.38%

B. 12.28%

C. 14.00%

D. 14.28%

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A project has initial costs of $3,000 and subsequent cash inflows in years 1 ? 4 of $1350, 275, 875, and 1525. The company's cost of capital is 10%. Calculate the Profitability Index for this project. Select one:

A. 1.00

B. 1.05

C. 1.10

D. 1.15

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Assume a project has normal cash flows (that is, the initial cash flow is negative, and all other cash flows are positive). All else equal, which of the following statements is most correct? Select one:

A. a project?s IRR increases as the cost of capital declines B. a project?s NPV increases as the cost of capital declines C. a project?s MIRR is unaffected by changes in the cost of capital D. a project?s NPV must exceed the cost of capital to be acceptable Question 7

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One advantage of the payback period method of evaluating investment opportunities is that it provides a rough measure of a project's liquidity and riskiness. Select one:

True

False

Question 8

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Which of the following is NOT a cash flow that contributes to the decision to accept or reject a project? Select one:

A. Changes in net operating working capital.

B. Shipping and installation costs.

C. Sunk costs.

D. Opportunity costs.

E. Externalities

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Which of the following NOT correct?

Select one:

A. Independent or non-mutually exclusive alternatives can be accepted at the same time. B. The modified internal rate of return assumes that inflow are reinvested at 80 percent of the internal rate of return C. It is the difference in the reinvestment assumptions that can be significant in determining when to use the present value or internal rate of return methods. D. Under the net present value method, cash flows are assumed to be reinvested at the firm's weighted average cost of capital Question 10

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Two projects being considered are mutually exclusive and have the following projected cash flows. If the required rate of return on these projects is 10 percent, which would be chosen and why? YearProject AProject B

0(50,000)(50,000)

115,625 0

215,625 0

315,625 0

415,625 0

515,625 99,500

Select one:

A. Project B because it has the higher NPV.

B. Project B because it has the higher IRR.

C. Project A because it has the higher NPV.

D. Neither, because both have IRRs less than the cost of capital. Question...

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