1. You are analyzing two mutually exclusive projects and have developed the following information. What is the incremental IRR (cross-over point)? A. 11.11% B. 13.01% C. 14.91% D. 16.75% E. 17.90%

2. The Winston Co. is considering two mutually exclusive projects with the following cash flows. The incremental IRR (cross-over point) is _____ and if the required rate is higher than the crossover rate then project _____ should be accepted. A. 13.94%; A B. 13.94%; B C. 15.44%; A D. 15.44%; B E. 15.86%; A For questions 3 through 6 you are analyzing a project and have prepared the following data: Required payback period is 2.5 years; Required return is 8.50%.

3. Based on the profitability index of _____ for this project, you should _____ the project. A. .97; accept B. 1.05; accept C. 1.18; accept D. .97; reject E. 1.05; reject 2

4. Based on the internal rate of return of _____ for this project, you should _____ the project. A. 8.95%; accept B. 10.75%; accept C. 8.44%; reject D. 9.67%; reject E. 10.33%; reject

5. Based on the net present value of _____ for this project, you should _____ the project. A. -$2,021.28; reject B. -$406.19; reject C. $7,978.72; accept D. $9,836.74; accept E. $12,684.23; accept

6. Based on the payback period of _____ for this project, you should _____ the project. A. 1.87 years; accept B. 2.87 years; accept C. 2.87 years; reject D. 3.13 years; reject E. 3.87 years; reject For questions 7 through 10, you are considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value. Required rate of return is 10% for A & 13% for B; Required payback period is 2.0 years & 2.0 years, respectively.

7. Based on the net present value method of analysis and given the information in the problem, you should: A. accept both project A and project B. B. accept project A and reject project B. C. accept project B and reject project A. D. reject both project A and project B. E. accept whichever one you want as they represent equal opportunities.

8. Based upon the internal rate of return (IRR) and the information provided in the problem, you should: A. accept both project A and project B. B. reject both project A and project B. C. accept project A and reject project B. D. accept project B and reject project A. E. ignore the IRR rule and use another method of analysis. Because these are mutually exclusive projects, the IRR rule should not be applied. 3

9. Based upon the payback period and the information provided in the problem, you should: A. accept both project A and project B. B. reject both project A and project B. C. accept project A and reject project B. D. accept project B and reject project A. E. require that management extend the payback period for project A since it has a higher initial cost.

10. Based upon the profitability index (PI) and the information provided in the problem, you should: A. accept both project A and project B. B. accept project A and reject project B. C. accept project B and reject project A. D. reject both project A and project B. E. disregard the PI method in this case.

11. A $25 investment produces $27.50 at the end of the year with no risk. Which of the following is true? A. NPV is positive if the required return is less than 10%. B. NPV is negative if the required return is less than 10%. C. NPV is zero if the required return is equal to 10%. D. Both A and C. E. None of the above.

12. Consider an investment with an initial cost of $20,000 and is that expected to last for 5 years. The expected cash flows in years 1 and 2 are $5,000, in years 3 and 4 are $5,500 and in year 5 is $1,000. The total cash inflow is expected to be $22,000 or an average of $4,400 per year. Compute the payback period in years. A. 3.18 years B. 3.82 years C. 4.00 years D. 4.55 years E. None of the above

13. An investment with an initial cost of $15,000 produces cash flows of $5,000 annually for 5 years. If the cash flow is evenly spread out over the year and the firm can borrow at 10%, the discounted payback period is _____ years. A. 3 B. 3.2 C. 3.75 D. 4 E. 5

14. An investment project has the cash flow stream of $-250, $75, $125, $100, and $50. The cost of capital is 12%. What is the discounted payback period? A. 3.15 years B. 3.38 years C. 3.45 years D. 3.60 years E. 4.05 years 4 15. An investment cost $10,000 with expected cash flows of $3,000 for 5 years. The discount rate is

15.2382%. The NPV is ___ and the IRR is ___ for the project. A. $0; 15.2382% B. $3.33; 27.2242% C. $5,000; 0% D. Can not answer without one or the other value as input. E. None of the above.

16. A project has an initial cost of $8,500 and produces cash inflows of $2,600, $4,900, and $1,500 over the next three years, respectively. What is the discounted payback period if the required rate of return is 7%? A. 2.13 years B. 2.33 years C. 2.67 years D. 2.91 years E. never

17. You would like to invest in the following project. Victoria, your boss, insists that only projects that can return at least $1.10 in today's dollars for every $1 invested can be accepted. She also insists on applying a 10% discount rate to all cash flows. Based on these criteria, you should: A. accept the project because it returns almost $1.22 for every $1 invested. B. accept the project because it has a positive PI. C. accept the project because the NPV is $2,851. D. reject the project because the PI is 1.05. E. reject the project because the IRR exceeds 10%.

18. You are considering an investment with the following cash flows. If the required rate of return for this investment is 13.5%, should you accept it based solely on the internal rate of return rule? Why or why not? A. Yes; because the IRR exceeds the required return. B. Yes; because the IRR is a positive rate of return. C. No; because the IRR is less than the required return. D. No; because the IRR is a negative rate of return. E. You can not apply the IRR rule in this case because there are multiple IRRs. 5

19. You are considering two independent projects with the following cash flows. The required return for both projects is 10%. Given this information, which one of the following statements is correct? A. You should accept project B since it has the higher IRR and reject project A because you can not accept both projects. B. You should accept project A because it has the lower NPV and reject project B. C. You should accept project A because it has the higher NPV and you can not accept both projects. D. You should accept project B because it has the higher IRR and reject project A. E. You should accept both projects if the funds are available to do so since both NPV's are > 0.

20. An investment has the following cash flows. Should the project be accepted if it has been assigned a required return of 9.5%? Why or why not? A. yes; because the IRR exceeds the required return by about 0.39%. B. yes; because the IRR is less than the required return by about 3.9%. C. yes; because the IRR is positive. D. no; because the IRR exceeds the required return by about 3.9%. E. no; because the IRR is 9.89%.

21. You are considering two mutually exclusive projects with the following cash flows. Will your choice between the two projects differ if the required rate of return is 8% rather than 11%? If so, what should you do? A. yes; Select A at 8% and B at 11%. B. yes; Select B at 8% and A at 11%. C. yes; Select A at 8% and select neither at 11%. D. no; Regardless of the required rate, project A always has the higher NPV. E. no; Regardless of the required rate, project B always has the higher NPV.