Multiple Choice Questions (5 points each) Which of the following two project ana
ID: 1167310 • Letter: M
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Multiple Choice Questions (5 points each) Which of the following two project analysis methods do not require an incremental analysis when comparing mutually exclusive alternatives? 6. a. Benefit-Cost and Present Worth Analyses b. Annual Equivalent Worth and Rate of Return Analyses c. Annual Equivalent Worth and Present Worth Analyses d. Rate of Return and Benefit-Cost Analyses e. Actually, all of the methods require the incremental analysis step A project requires a year zero investment of $750,000, and it returns s250,000 in year 1, $350,000 in year 2, $450,000 in year 3, and $500,000 in year 4. What is the conventional payback period if all the payments gocur at the end of the year? 7. a. 0 years b. 1 year c. 2 years 3 years You are considering a stock investment now of $100,000. You plan to leave the stock untouched for 9 years and then sell it for an estimated $212,000. What is the IRR? 8. a. 1.13% /freo b. 2.12% c. 8.71% d. 13.3% e. You cannot find the IRR without knowing the MARR first. A contract requires the four year cash flow cycle shown below, and it can be repeated every 4 years indefinitely. What is the annual equivalent worth of this project over its indefinite lifespan if the MARR-10%? 9. Year Cash Flow 150,000 a. $111,826 b. $504,440 c. $354,440 d. $159,151 e. The answer is undefined 0 50,000 2 200,000 3 300,000 100,000 10. You are interested in a project's IRR. You calculate the present worth at 12% and find that it is $19,451. Which of the following statements is true? a. The actual IRR is 12%. b. The actual IRR is greater than 12%. c. The actual IRR is less than 12%.Explanation / Answer
Q.6 Option e. With respect to time factor and mutually exclusive projects requires incremental analysis.
Q.7 Option d
Year
Cash flow
Cumulative cash flow
0
-750000
-750000
1
250000
-500000
2
350000
-150000
3
450000
300000
4
550000
850000
8. Option C
=(212000/100000)^(1/9)-1 = 8.708%
9. Option a
Formula = NPV/annuity factor
NPV =
Year
Cashflow
0
-150000
1
50000
2
200000
3
300000
4
100000
NPV
? 3,54,439.59
annuity factor =(1-(1/(1+0.1))^4)/0.1 = 3.17
EAW = 354439.59/3.17 = 111815
10. Option b. Since the IRR is at interest rate where present worth is zero
Year
Cash flow
Cumulative cash flow
0
-750000
-750000
1
250000
-500000
2
350000
-150000
3
450000
300000
4
550000
850000
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