Consider the following two projects: Year 2 Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Year 1 Year 3 Year 4 Project Year 0 Discount Rate A - 100 40 50 60 N/A 0.18 в - 73 30 30 30 30 0.18 Assume that projects A and B are mutually exclusive. The correct investment decision and the best rationale for that decision is to O A. invest in project B, since NPV, > NPV, O B. invest in project A, since NPV > 0. OC. invest in project A, since NPV, < NPVA- O D. invest in project B, since IRR, > IRRA

Consider the following two projects: Year 2 Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Year 1 Year 3 Year 4 Project Year 0 Discount Rate A - 100 40 50 60 N/A 0.18 в - 73 30 30 30 30 0.18 Assume that projects A and B are mutually exclusive. The correct investment decision and the best rationale for that decision is to O A. invest in project B, since NPV, > NPV, O B. invest in project A, since NPV > 0. OC. invest in project A, since NPV, < NPVA- O D. invest in project B, since IRR, > IRRA

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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12
Total project value ($) Debt Option Loan-to-value Rate (%) Interest only period (years) Amortization (years) $35,000,000.00 A 65% 3.25% 3 20 B 70% 3.25% 3 30 C 70% 3.00% 0 30 D 50% 4.25% 0 30
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A firm is considering the following independent projects. Project Investment Present value offuture cash flows NPV A $130 $176 $46 B $103 $115 $12 C $183 $287 $104 D $161 $199 $38 E $184 $273 $89 What is the Profitability Index of Project B? Question 5Answer a. 0.85 b. 1.12 c. 0.89 d. 1.18
Mike Riskless is considering two projects. He has estimated the IRR for each under three possible scenarios and assigned probabilities of occurrence to each scenario. State of Economy Probability Estimated BTIRR Investment I Estimated BTIRR Investment II Optimistic 0.20 0.15 0.20 Most likely 0.60 0.10 0.15 Pessimistic 0.20 0.05 0.05 1.00 Riskless is aware that the pattern of returns for Investment II looks very attractive relative to Investment I; however, he believes that Investment II could be more risky than Investment I. He would like to compare the two investments considering both the risk and return on each. Required: a. Compute BTIRR under each of the three possible scenarios. b. Compute variance and standard deviation of the IRRs.
Refer to the table below to answer the following question. Project Initial Investment NPV IP 200 22 Q 180 26 IR 185 38 IS 380 10 The project with highest Profitability Index is Project P Project Q Project R Project S
In which of the following cases is IRR unreliable? I. When looking at mutually exclusive projects II. For a project that has positive cash flow in Year 1, but negative cash flow in Year 2 Both Neither Only I Only II
solve these 2 pratice problems
Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as follows: d. What is the crossover rate, and what is its significance? Crossover rate = The crossover rate represents the cost of capital at which the two projects value, at a cost of capital of 13.14% is:
You are evaluating five investment projects. You already calculated the rate of return for each alternative investment and incremental rate of return between the two alternatives as well. In calculating the incremental rate of return, a lower cost investment project is subtracted from the higher cost investment project. All rate of return figures are rounded to the nearest integers. Investment Alternative Initial Investment ($) Rate of Return (%) Rate of Return on Incremental Investment (%) A CDE A B C D E b.Select E. c. Select B. 35,000 45,000 d. Do nothing. 50,000 65,000 80,000 12 15 13 20 18 B 28 20 36 27 12 40 22 If all investment alternatives are mutually exclusive and the MARR is 12%, which alternative should be chosen? a. Select D. 42 25 -5
Which of the following statements is CORRECT? a. If a project with normal cash flows has an IRR greater than the cost of capital, the project must also have a positive NPV. b. If a project with normal cash flows has an IRR less than the cost of capital, the project must have a positive NPV. c. If the NPV is negative, the IRR must also be negative. d. A project's MIRR can never exceed its IRR. e. If Project A's IRR exceeds Project B's, then A must have the higher NPV.
What is the Modified Internal Rate of Return (MIRR) Select one: The opposite of NPV A reinvestment rate to account for positive cash flows reinvested into a project An approach to discounting The finance rate of a project

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