1. IRR indicates a project is deemed desirable (acceptable) when:

a. the IRR is greater than or equal to zero

b. the IRR is less than zero

c. the IRR is greater than or equal to the risk-adjusted cost of capital

d. the IRR is less than the risk-adjusted cost of capital




2. One factor that makes capital budgeting one of the most important function of financial managers is that:

a. the decisions generally have a short-term effect on the firms performance.

b. the decisions generally do not involve long-term assets.

c. the decisions generally do not involve substantial expenditures

d. all of the above are true

e. none of the above are true




3. Determine the net present value for a project that costs $299,000 and would yield after-tax cash flows of $27,000 per year for the first 9 years, $35,000 per year for the next 16 years, and $48,000 per year for the following 10 years. Your firm's cost of capital is 10.00%.

a. -$154.08

b. -$109.92

c. -$129.79

d. -$203.39

e. -$221.88




4. Determine the net present value for a project that costs $58,500 and would yield after-tax cash flows of $9,000 the first year, $11,000 the second year, $14,000 the third year, $16,000 the fourth year, $20,000 the fifth year, and $26,000 the sixth year. Your firm's cost of capital is 5.00%.

a. $37,500.00

b. $16,954.36

c. $96,000.00

d. $20,377.84

e. $27,471.55




5. Determine the internal rate of return for a project that costs $228,000 and would yield after-tax cash flows of $22,000 per year for the first 5 years, $30,000 per year for the next 5 years, and $43,000 per year for the following 5 years.

a. 7.81%

b. 9.26%

c. 8.73%

d. 7.51%

e. 9.75%




6. Determine the internal rate of return for a project that costs -$143,000 and would yield after-tax cash flows of $22,000 the first year, $24,000 the second year, $27,000 the third year, $29,000 the fourth year, $33,000 the fifth year, and $39,000 the sixth year.

a. 4.53%

b. 5.37%

c. 5.06%

d. 4.36%

e. 5.65%




7. Your company has an opportunity to invest in a project that is expected to result in after-tax cash flows of $9,000 the first year, $11,000 the second year, $14,000 the third year, -$8,000 the fourth year, $21,000 the fifth year, $27,000 the sixth year, $30,000 the seventh year, and -$6,000 the eighth year. The project would cost the firm $53,900. If the firm's cost of capital is 14%, what is the modified internal rate of return?

a. 13.26%

b. 11.87%

c. 14.06%

d. 11.41%

e. 14.80%