Exam 7: Investment Decision Rules

Use the table for the question(s)below. Consider two mutually exclusive projects with the following cash flows: -If the discount rate for project A is 16%,then what is the NPV for project A?

Use the table for the question(s)below. Consider a project with the following cash flows in $: -Assume the appropriate discount rate for this project is 15%.The IRR for this project is closest to:

Use the table for the question(s)below. Consider the following list of projects: -Assuming that your capital is constrained,what is the fifth project that you should invest in?

Use the following information to answer the question(s)below. Frank Dewey Esquire from the firm of Dewey,Cheatum,and Howe,has been offered an upfront retainer of $30,000 to provide legal services over the next 12 months to Taggart Transcontinental.In return for this upfront payment,Taggart Transcontinental would have access to 8 hours of legal services from Frank for each of the next 12 months.Frank's normal billable rate is $250 per hour for legal services. -Assuming that Dewey's cost of capital is 12% EAR,then the IRR of his retainer offer is closest to:

Use the table for the question(s)below. Consider the following two projects with cash flows in $: -The payback period for project A is closest to:

Use the table for the question(s)below. Consider the following two projects with cash flows in $: -The payback period for project Alpha is closest to:

Which of the following statements is FALSE?

Use the table for the question(s)below. Consider the following two projects with cash flows in $: -Assume that projects A and B are mutually exclusive.The correct investment decision and the best rationale for that decision is to:

Consider two mutually exclusive projects A & B.If you subtract the cash flows of opportunity B from the cash flows of opportunity A,then you should:

Use the table for the question(s)below. Consider the following two projects with cash flows in $: -The internal rate of return (IRR)for project B is closest to:

Use the table for the question(s)below. Consider a project with the following cash flows in $: -Assume the appropriate discount rate for this project is 15%.The profitability index for this project is closest to:

Use the information for the question(s)below. Boulderado has come up with a new composite snowboard.Development will take Boulderado four years and cost $250,000 per year,with the first of the four equal investments payable today upon acceptance of the project.Once in production the snowboard is expected to produce annual cash flows of $200,000 each year for 10 years.Boulderado's discount rate is 10%. -The NPV profile:

The internal rate of return rule can result in the wrong decision if the projects being compared have:

Use the information for the question(s)below. Larry the Cucumber has been offered $14 million to star in the lead role of the next three Larry Boy adventure movies.If Larry takes this offer,he will have to forgo acting in other Veggie movies that would pay him $5 million at the end of each of the next three years.Assume Larry's personal cost of capital is 10% per year. -Explain why the NPV decision rule might provide Larry with a different decision outcome than the IRR rule when evaluating Larry's three-movie deal offer.

Use the table for the question(s)below. Consider the following two projects with cash flows in $: -An incremental IRR of Project B over Project A is closest to:

You are trying to decide between three mutually exclusive investment opportunities.The most appropriate tool for identifying the correct decision is:

Use the information for the question(s)below. The Sisyphean Company is planning on investing in a new project.This will involve the purchase of some new machinery costing $450,000.The Sisyphean Company expects cash inflows from this project as detailed below: The appropriate discount rate for this project is 16%. -The payback period for this project is closest to:

Use the table for the question(s)below. Consider the following two projects with cash flows in $: -The maximum number of incremental IRRs that could exist for project B over project A is:

Use the information for the question(s)below. Boulderado has come up with a new composite snowboard.Development will take Boulderado four years and cost $250,000 per year,with the first of the four equal investments payable today upon acceptance of the project.Once in production the snowboard is expected to produce annual cash flows of $200,000 each year for 10 years.Boulderado's discount rate is 10%. -The NPV for Boulderado's snowboard project is closest to:

Use the table for the question(s)below. Consider the following two projects with cash flows in $: -The profitability index for project A is closest to: