1a) If the NPV for a project is +400, using a discount rate(cost of capital) of 14%, then the IRR for the project must be:

	Less than 14%
	Equal to 14%

	Greater than 14%
	None of the above

Question 1b)

Given the graph shown, and a crossover rate of 8%, assume the projects are mutually exclusive,(can only pick a single project), at a cost of capital of 5% which project would NPV CHOOSE(1ST ANSWER), which project would IRR CHOOSE(2nd answer)

	A, B
	B,A

	B,B
	A,A

Question 1c)

You are considering the following 2 mutually exclusive projects. Using the equivalent annual annuity method and a cost of capital of 10%, which project should be selected. (Round to nearest $)

		Project A	Project B
Year		Cash Flow	Cash Flow
0		(20,000)	(20,000)
1		15,000	5,000
2		20,000	10,000
3			15,000
4			50,000
		Project B because of an EAA of $12,060

	Project A because of an EAA of $5,857
	Project B because of an EAA of $38,320

Project A because of an EAA of $10,165

Question 1d)

The internal rate of return is the rate of interest that makes the present value of a projects cash inflows:

	greater than the present value of its cash outflows
	less than the present value of its cash outflows

	equal to the present value of its cash outflows
	none of the above

Question 1e)

Equity is historically much riskier than ___________________________.

	Debt
	NPV

	Interest Rates
	none of the above

Question 1f)

Although quick and easy to apply, the payback method is deficient in that it

	disregards the time value of money
	is based on arithmetic rather than algebra

	disregards cash flows after the payback period
	a and c

Question 1g)

You are considering the following 2 mutually exclusive projects. Using the equivalent annual annuity method and a cost of capital of 10%, which project should be selected. (Round to nearest $)

		Project A	Project B
Year		Cash Flow	Cash Flow
0		(20,000)	(20,000)
1		15,000	5,000
2		20,000	10,000
3			15,000
4			50,000
		Project B because of an EAA of $12,060

	Project A because of an EAA of $5,857
	Project B because of an EAA of $38,320

Project A because of an EAA of $10,165

Question 1h)

Project A has annual cash flows of $200.00 for the next three years. Project B has annual cash flows of $100.00 for the next three years and then annual cash flows of $500.00 for the following four years. Assuming both projects have an initial cost of $500.00, which project is better based on the payback period criteria?

	Project A
	Project B

	Cannot be determined without discount rates for each project
	Both projects have the same payback period