1. If a project has NPV = 0, what types of following investors should have received their required rate of return from this project?

Bondholders

Preferred Stockholders

Common Stockholders

None of the above All of the above

2. Both NPV and IRR assume that the reinvestment rate on cash flows is equal to the cost of capital. True False

3.Whats the weakness of the discount payback period?

Provides an indication of a projects risk and liquidity.

Difficult to understand and calculate. Ignores the time value of money.

Ignores cash flows occurring after the payback period.

3.For two mutually projects, we assume their NPV profiles cross and the crossover rate is 8%. We assume the require rate of return is r. We use both NPV and IRR methods to analyze the two projects. Which of the following statements is most correct?

If r > 8%, NPV and IRR methods get similar decisions.

If r > 8%, NPV and IRR methods get conflicting decisions.

If r < 8%, NPV and ITT methods get similar decisions.

If r < 8%, NPV and IRR methods get conflicting decisions.

Both A and D are correct.

4.IRR assumes cash flows are reinvested at IRR but MIRR assumes that cash flows are reinvested at WACC. True False

5.Polk Products is considering an investment project with the following cash flows: Year 0 = -$100,000 (initial costs); Year 1= $40,000; Year 2 =$90,000; and Year 3 = $30,000; and Year 4 = $60,000. The company has a 10% cost of capital. What is the projects discounted payback?

1.67 years ,1.86 years, 2.11 years, 2.49 years ,2.67 years

6.Polk Products is considering an investment project with the following cash flows: Year 0 = -$100,000 (initial costs); Year 1= $40,000; Year 2 =$90,000; and Year 3 = $30,000; and Year 4 = $60,000. The company has a 10% cost of capital, calculate the NPV for the project.

$56,281

$67,476

$74,264

$78,496

$80,387

7. Polk Products is considering an investment project with the following cash flows: Year 0 = -$100,000 (initial costs); Year 1= $40,000; Year 2 =$90,000; and Year 3 = $30,000; and Year 4 = $60,000. The company has a 10% cost of capital, calculate the IRR for the project. 10% 20.8% 30.1% 40.7% 50.3% If a firm paid $30,000 for a consulting firm for the feasibility analysis of a project. The present value of all other estimated cash inflows and cash outflows which are related to this project is $20,000. Should the investment be undertaken? Yes No

8.The Seattle Corp. is considering a new project. The firm has already paid $10,000 consulting fee for the feasibility analysis of the project. The project costs $230,000 to purchase buildings and equipment, $10,000 for shipping fee, and $10,000 for installation fee. Compute the depreciation basis of the project.

$260,000

$250,000

$240,000

$230,000