1) If the vacancy and collection loss percentage increases then the NPV will a.
ID: 2675737 • Letter: 1
Question
1) If the vacancy and collection loss percentage increases then the NPV willa. increase
b. decrease
c. stay the same
2)If the operating expenses decrease then the NPV will
a. increase
b. decrease
c. stay the same
3)If the potential gross income grows at a larger growth rate, then the IRR will
a. increase
b. decrease
c. stay the same
4)If the NPV is equal to 0, then the investor broke even (i.e. return on investment = 0%)
a. true
b. false
5)Given the following information, calculate the NPV for this property. Initial cash outflow = $200,000, Discount rate = 15%, CF for year 1 = $25,876, CF for year 2 = $23,998, CF for year 3 = $23,013, CF for year 4 = $22,105, CF for year 5 = $144,670.
a. $340,343
b. -$59,657
c. $140,343
d. $39,662
e. None of the above
6) Given the following information, calculate the IRR for this property. Initial cash outflow = $120,000, CF for year 1 = $5,000, CF for year 2 = $7,000, CF for year 3 = $16,000, CF for year 4 = $13,000, CF for year 5 = $125,000.
a. less than 7%
b. between 7% and 7.99%
c. between 8% and 8.99%
d. between 9% and 9.99%
e. greater than 9.99%
7) If the potential gross income grows at a lower growth rate, then the IRR will
a. increase
b. decrease
c. stay the same
8) If the discount rate increases then the IRR will
a. increase
b. decrease
c. stay the same
9) If the IRR is greater than 0, then the investor should always purchase the property.
a. true
b. false
10) If the discount rate decreases then the NPV will
a. increase
b. decrease
c. stay the same
Explanation / Answer
1) If the vacancy and collection loss percentage increases then the NPV will b. decrease .....There is a net Loss of revenue... 2)If the operating expenses decrease then the NPV will a. increase ....EBIT will increase 3)If the potential gross income grows at a larger growth rate, then the IRR will b. decrease ...IRR understates the annual equivalent rate of return for a project whose interim cash flows are reinvested at a rate higher than the calculated IRR. 4)If the NPV is equal to 0, then the investor broke even (i.e. return on investment = 0%) b. false .. It means IRR = Cost of Capital 5)Given the following information, calculate the NPV for this property. Initial cash outflow = $200,000, Discount rate = 15%, CF for year 1 = $25,876, CF for year 2 = $23,998, CF for year 3 = $23,013, CF for year 4 = $22,105, CF for year 5 = $144,670. b. -$59,657 ....=NPV(15%,25876,23998,23013,22105,144670)-200000 6) Given the following information, calculate the IRR for this property. Initial cash outflow = $120,000, CF for year 1 = $5,000, CF for year 2 = $7,000, CF for year 3 = $16,000, CF for year 4 = $13,000, CF for year 5 = $125,000. b. between 7% and 7.99% ..7.58% IRR = IRR(-120000,5000,7000,16000,13000,125000) 7) If the potential gross income grows at a lower growth rate, then the IRR will a. Increase ....IRR overstates the annual equivalent rate of return for a project whose interim cash flows are reinvested at a rate lower than the calculated IRR. 8) If the discount rate increases then the IRR will b. decrease 9) If the IRR is greater than 0, then the investor should always purchase the property. b. false .An IRR higher than the cost of capital will result in a profitable investment. 10) If the discount rate decreases then the NPV will b. decrease
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