Reference no: EM133118334

1. Given the information in the table below, which of the following statements is true? Assume the cost of capital is 12%.

Project	Initial investment	Year 1 Cash flow	Year 2 Cash Flow	Year 3 Cash Flow	Year 4 Cash Flow	Year 5 Cash Flow
A	$1,000,000	300,000	300,000	400,000	400,000	0
B	$1,450,000	500,000	500,000	500,000	500,000	0
C	$2,500,000	750,000	0	0	1,000,000	3,000,000

a. If these projects are mutually exclusive, only project C should be accepted.

b. Project C has the shortest payback period

c. Project A has the highest IRR.

d. If these projects are independent, only project C should be accepted

e. Project B has the highest NPV.

2. Consider a project with the following cash flows:

Year	Cash flow
0	+$100
1	-60
2	-60

The IRR of the project is ---------% (2 d.p)

If the prevailing interest rate is 12%, should you accept the project?

3. Here are the cash flows for two mutually exclusive projects:

Project	C0	C1	C2	C3
A	-20,000	8,000	8,000	8,000
B	-20,000	0	0	25,000

The IRR of project A is --------%

The IRR of project B is --------%

If the cost of capital is 5%, which project should be accepted? (A/B/Both/Neither)

If the cost of capital is 3%, which project should be accepted? (A/B/Both/Neither)