1. Thomas Company is investing $10,000 in a project that has a two-year life with an internal...

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1. Thomas Company is investing $10,000 in a project that has a two-year life with an internal rate of return (IRR) of 10%. The project yields a net cash flow of $7,260 for Year 2.

The present value of $1 for one year at 10 percent is 0.90909

The present value of $1 for two years at 10 percent is 0.86245

What is the net cash flow produced by the project for Year 1? Round any calculations to the nearest dollar.

a. $2,740

b. $4,400

c. $4,000

d. $6,000

2. Assume that an investment of $100,000 produces a net cash flow of $60,000 per year for two years. The discount factor for year 1 is 0.89 and for year 2 is 0.80. The NPV is

a. $0

b. $6,800

c. $1,400

d. ($4,000)

Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment...
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Cornerstones of Cost Management

ISBN: 978-1305970663

4th edition

Authors: Don R. Hansen, Maryanne M. Mowen

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