general business data bank

Use the table for the question(s)
below.

Consider the following two projects:

Project

Year 0
Cash Flow

Year 1
Cash Flow

Year 2
Cash Flow

Year 3
Cash Flow

Year 4
Cash Flow

Discount Rate

A

-100

40

50

60

N/A

.15

B

-73

30

30

30

30

.15

18)

Assume that projects A and B are mutually
exclusive. The correct investment
decision and the best rational for that decision is to?

A)

Invest in project A since NPVB< NPVA B) Invest in project B since IRRB> IRRA

C)

Invest in project B since NPVB> NPVA

D)

Invest in project A since NPVA> 0

19)

The incremental IRR of Project B over
Project A is closest to:

A)

12.6%

B)

23.3%

C)

1.7%

D)

17.3%

:

Use the table for the question(s)
below.

Consider the following two projects:

Project

Year 0
C/F

Year 1
C/F

Year 2
C/F

Year 3
C/F

Year 4
C/F

Year 5
C/F

Year 6
C/F

Year 7
C/F

Discount
Rate

Alpha

-79

20

25

30

35

40

N/A

N/A

15%

Beta

-80

25

25

25

25

25

25

25

16%

20)

Assume that projects Alpha and Beta are
mutually exclusive. The correct
investment decision and the best rational for that decision is to?

A)

Invest in project Beta since NPVBeta> 0

B)

Invest in project Alpha since NPVBeta< NPVAlpha C) Invest in project Beta since IRRB> IRRA

D)

Invest in project Beta since NPVBeta> NPVAlpha> 0

:

Use the table for the question(s)
below.

Consider two mutually exclusive projects with the following cash
flows:

Project

C/F0

C/F1

C/F2

C/F3

C/F4

C/F5

C/F6

A

$(41,215)

$12,500

$14,000

$16,500

$18,000

20,000

N/A

B

$(46,775)

$15,000

$15,000

$15,000

$15,000

$15,000

$15,000

WS1)

You are considering using the incremental
IRR approach to decide between the two mutually exclusive projects A &
B. How many potential incremental IRRs
could there be?

A)

3

B)

0

C)

2

D)

1

:

WS2)

What is the incremental IRR for project B
over project A? Would you feel
comfortable basing your decision on the incremental IRR?

.

WS3)

Assuming that the discount rate for
project A is 16% and the discount rate for B is 15%, then given that these are
mutually exclusive projects, which project would you take and why?

6.4 Project Selection with Resource
Restraints

Use the table for the question(s)
below.

Consider the following list of projects:

Project

Investment

NPV

A

135,000

6,000

B

200,000

30,000

C

125,000

20,000

D

150,000

2,000

E

175,000

10,000

F

75,000

10,000

G

80,000

9,000

H

200,000

20,000

I

50,000

4,000

21)

Assuming that your capital is constrained,
what is the fifth project that you should invest in?

A)

Project H

B)

Project I

C)

Project B

D)

Project A

22)

Assuming that your capital is constrained,
so that you only have $600,000 available to invest in projects, which project
should you invest in and in what order?

A)

CBFH

B)

CBGF

C)

BCFG

D)

CBFG

23)

Assume that your capital is constrained,
so that you only have $600,000 available to invest in projects. If you invest in the optimal combination of
projects given your capital constraint, then the total NPV for all the projects
you invest in will be closest to:

A)

$65,000

B)

$80,000

C)

$69,000

D)

$111,000

: