Suppose that a project with an initial investment of $30,000 has the following a

Question

Suppose that a project with an initial investment of $30,000 has the following annual cash inflows:

If the cost of capital is 8 percent, then the net present value of the project:

A. -$3,506.37–the project should be rejected.

B. -$4,708.42–the project should be rejected.

C. $3,506.37–the project should be accepted.

D. $4,708.42–the project should be accepted.

E. None of the above statements are true.

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Project A and Project B are mutually exclusive. Project A has an IRR of 10 percent. Project B has an IRR of 12 percent. If the marginal cost of capital (MARR) is 11 percent, then:

A. Project A should be accepted and Project B rejected.

B. Project B should be accepted and Project A rejected.

C. Both projects should be accepted since the decision is not based on the IRR but the NPV.

D. Both projects should be rejected since the decision is not based on the IRR but the NPV.

ENGINEERING ECONOMICS

YEAR 1 2 3 4 5 CASH IN FLOW $4,000 $3,500 $8,000 $12,000 $8,000

Explanation / Answer

None of the answers are true.

2) A project can be accepted if only it can earn more rate of return than the interest rate on the capital.

Answer is B.

Year 0 1 2 3 4 5 Total NPV Cash flow -30000 4000 3500 8000 12000 8000 NPV -30000 3703.704 3000.686 6350.658 8820.358 5444.666 -2679.93

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