Reference no: EM133976786

Question

You are analyzing a proposed project and have compiled the following information: Year Cash flow

0 -$135,000

1 $ 28,600

2 $ 65,500

3 $ 71,900

The required payback period is 3 years and the required return is 8.50 percent

1. What is the net present value of the proposed project?

a. $3,289.86 b. $3,313.29 c. $4,289.06

2. What is the discounted payback period?

a. 2.57 years b. 2.64 years c. 2.87 years

3. Should the proposed project be accepted based on the IRR?

a. Yes; The project IRR is greater than the required return.

b. Yes; The project IRR is equal to zero.

c. No; The project IRR is greater than the required return.

d. No; The project IRR is greater than zero

4. Should the proposed project be accepted based on the profitability index (PI)?

a. Yes; The PI is less than 1.0

b. Yes; The PI is greater than 1.0.

c. No; The PI is less than 1.0.

d. No; The PI is greater than 1.0.

5. Which of the following statements are correct concerning the internal rate of return?

I. IRR is used to determine which one of two mutually exclusive projects should be accepted.

II. IRR is the discount rate that makes the net present value equal to zero.

III. There can be multiple IRRs if the cash flows are unconventional.

IV. You should accept a project when the IRR is less than the required return.

a. I and III only b. II and IV only c. II and III only d. I and II only