Multiple choice

1. Mass Company is investing in a giant crane. It is expected to cost 6.6 million in initial 

investment and it is expected to generate an end of year cash flow of 3.0 million each year for three years. Calculate the MIRR for the project if the cost of capital is 12% APR.  

a. 17.3% 

b. 15.3% 

c. 23.8% 

d. 22.1% 

2. Given the following cash flow for project A: C0= -3,000, C1= +500, C2= +1,500 and C3= +5,000, calculate the NPV of the project using a 15% discount rate.  

a. $5,000 

b. $2,352 

c. $3,201 

d. $1,857 

3. Profitability index is useful under:  

a. Capital rationing 

b. Mutually exclusive projects 

c. Non-normal projects 

d. None of the above 

4. The following table gives the available projects for a firm. If the firm has a limit of 210 million to invest, what is the maximum NPV the company can obtain?  

a. 200 

b. 283 

c. 307 

d. None of the above 

5. The following table gives the available projects for a firm The firm has only twenty million to invest. What is the maximum NPV that the company can obtain?  

a. 3.5 

b. 4.0 

c. 4.5 

d. None of the above 

6. Benefit-cost ratio is defined as the ratio of:  

a. Net present value cash flow to initial investment 

b. Present value of cash flow to initial investment 

c. Net present value of cash flow to IRR 

d. Present value of cash flow to IRR 

7.  Preferably, cash flows for a project are estimated as:  

a. Cash flows before taxes 

b. Cash flows after taxes 

c. Accounting profits before taxes 

d. Accounting profits after taxes 

8.  When a firm has the opportunity to add a project that will utilize excess factory capacity (that is currently not being used), which costs should be used to determine if the added project should be undertaken?  

a. Opportunity cost 

b. Sunk cost 

c. Incremental costs 

d. None of the above 

9.  The cost of a resource that may be relevant to an investment decision even when no cash changes hand is called a (an):  

a. Sunk cost 

b. Opportunity cost 

c. Working capital 

d. None of the above 

10.  Net Working Capital is the: I) Short-term assets II) Short term liabilities III) Long-term assets IV) Long term liabilities  

a. I only 

b. (I - II) 

c. (III - I) 

d. (III - IV)