A firm is evaluating two independent projects utilizing the internal rate of return technique. Project X has an initial investment of 80,000 and cash inflows at the end of each of the next five years of25,000. Project Z has an initial investment of 120,000 and cash inflows at the end of each of the next four years of 40,000. The firm should

a.

accept both if the cost of capital is at most 15 percent.

b.

accept only Z if the cost of capital is at most 15 percent.

c.

accept only X if the cost of capital is at most 15 percent.

d.

none of the above

What term is used for the present value of the future cash flows after netting out the initial cash flow.

a.

Real value

b.

Net discounted value

c.

Discounted present value

d.

Net present value

Which of the following statements is most correct?

a.

The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the cost of capital.

b.

If a projects internal rate of return (IRR) exceeds the cost of capital, then the projects net present value (NPV) must be positive.

c.

If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.

MIKE Security Company can issue new bonds with a market interest rate of 14 percent. Jules marginal tax rate is 32 percent. the after-tax cost of debt, AT kd, for this company.

a.

5.9%

b.

7.9%

c.

9.5%

d.

8.9%