1) Different discounted cash flow evaluation methods may provide conflicting ran

Question

1) Different discounted cash flow evaluation methods may provide conflicting rankings of investment projects when:
a. the size of investment outlays differ
b. the projects have unequal lives
c. the timing of the cash flows differ
d. all of the above

2) An analytical income statement:
a. can be easily calculated from a corporation's annual report
b. emphasizes the relationship between fixed and variable costs
c. assumes that the company produces only one product
d. assumes that the company does not alter its degree of financial leverage

3) A project has an initial outlay of $100,000. It has a single payoff at the end of year 4 of $200,000. What is the internal rate of return for the project (round to the nearest %)?
a. 15%
b. 17%
c. 19%
d. 21%

Explanation / Answer

1.  c. the timing of the cash flows differ 2.   a. can be easily calculated from a corporation's annual report 3. c. 19%            = 1 / (1+r)^n Interest Rate = r (19%) Number of Years = n (4 Years) =1/(1.19)^4 = 0.499 or 0.5 Present value of Investment = 100000 (200000 * 0.5)     Internel rate of return means it is the percentage where investment - Cash inflows will become zero. In this problem at 19% discount rate investment - Cash inflows become zero. Thank you.... = 1 / (1+r)^n Interest Rate = r (19%) Number of Years = n (4 Years) =1/(1.19)^4 = 0.499 or 0.5 Present value of Investment = 100000 (200000 * 0.5)

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