Which statement about the internal rate of return

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Reference no: EM132032525

1. A project has a cost of $50,000 and its expected net cash inflows are $10,000 per year for 8 years. What is the project’s IRR? 11.81%

A 3.82%

B 5.53%

C 7.29%

D 9.54%

E 11.81%

2. The ABC Corp has an overall cost of equity of 20 percent and a beta of 1.5. The firm is financed solely with common stock. The risk-free rate of return is 5 percent. What is an appropriate cost of capital for a division within the firm that has an estimated beta of 1.3?

A 20%

B 13%

C 15%

D 16%

E 18%

3. Which statement about the internal rate of return (IRR) is correct?

A The Net Present Value (NPV) rule and Internal Rate of Return Rule (IRR) rule will always rank the projects in the same order.

B The IRR should be used when deciding between two mutually exclusive projects

C The IRR is very similar in its methodology to the average accounting return

D The IRR may lead to incorrect decisions when comparing mutually exclusive projects.

4. Which one of the following is a capital budgeting decision?

A deciding whether a bank loan should be secured or if bonds should be issued

B determining how many bonds versus how many shares of stock should be issued

C ascertaining the minimum amount of cash which should be kept on hand

D determining the optimal level of inventory to be maintained

E deciding whether or not a newly invented product should be produced

Reference no: EM132032525

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