Consider a project’s incremental cash flows in order are: -$700, $300, $250, $20
ID: 2745083 • Letter: C
Question
Consider a project’s incremental cash flows in order are: -$700, $300, $250, $200. Assume a cost of capital of 9%. What is the NPV of this project? What would the NPV function in Excel say is the NPV of this project?
A. 50.00;59.91 B. 59.91;50.00 C. 59.91;54.97 D. 54.97;59.91
An investment costs $400,000 today and is expected to produce a one-time inflow at the end of year 8 of $450,000. What is the IRR of this project?
A. 1.48%
B. 1.01%
C. 10.15%
D. 14.83%
A project has the following incremental cash flows for years zero, through year 4, respectively: -$3,000, $900, $800, $1,000 and $700. Is 9% the IRR of this project? If not, is where is the IRR compared to 9%?
A. Yes, 9% is the IRR.
B. No, the IRR is above 9%.
C. No, the IRR is below 9%
D. There is not enough information provided to answer his question.
A project has the following incremental cash flows for years zero, through year 3, respectively: -$1,700, $800, $1,000, and $200. What is the IRR of this project?
A. 1.16%
B. 16.01%
C. 10.16%
D. 8.73%
Projects A and B are mutually-exclusively. In the NPV profile graph, the vertical-intercept for A is $8 million and that for B is $11 million. The IRR for A is 13% and the IRR for B is 10%. The crossover rate for the two projects is 8%. If the firm’s cost of capital is 6%, which project should be preferred and why?
A. A because it has the higher IRR.
B. B because it has the higher NPV.
C. A because it has the higher NPV.
D. B because its IRR is above the crossover rate.
Explanation / Answer
Answer 1.
NPV of the project = -700 + 300/1.09 + 250/1.09^2 + 200/1.09^3
NPV of the project = $ -59.91
In Excel to calculate the NPV “=NPV(0.09,A1,A2,A3)-700” Here A1:A3 contain the cash flow in year 1 to year 3. This will give the answer of $ -59.91.
Answer 2.
Let IRR be i%.
400,000 = 450,000/(1+i)^8
i = 1.48%
Answer 3.
More information is needed as to calculate the IRR we need an outflow during the period of project.
Answer 4.
More information is needed as to calculate the IRR we need an outflow during the period of project.