Multiple choice

1. The firm should accept independent projects if:

A. the NPV is greater than the discounted payback. 

B. the profitability index is greater than 1.0. 

C. the IRR is positive. 

D. the payback is less than the IRR. 

2. The NPV assumes cash flows are reinvested at the

A. cost of capital. 

B. NPV. 

C. real rate of return. 

D. IRR. 

3. ABC Service can purchase a new assembler for $15,052 that will provide an annual net cash flow of $6,000 per year for five years. Calculate the NPV of the assembler if the required rate of return is 12%. 

A. $6,577 

B. $4,568 

C. $7,621 

D. $1,056 

4. You have been asked to analyze a capital investment proposal. The project’s cost is $2,775,000. Cash inflows are projected to be $925,000 in Year 1; $1,000,000 in Year 2; $1,000,000 in Year 3; $1,000,000 in Year 4; and $1,225,000 in Year 5. Assume that your firm discounts capital projects at 15.5%. What is the project’s MIRR? 

 A. 16.73% 

B. 12.62% 

C. 10.44% 

D. 19.99%