Which of the following is true regarding the internal rate of return for a project?

Self-Study Quiz: Multiple choice questions

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Chapter 13

Multiple choice questions

Try the multiple choice questions below to test your knowledge of Chapter 13. Once you have completed the test, click on 'Submit Answers for Grading' to get your results.

If your lecturer has requested that you send your results to them, please complete the Routing Information found at the bottom of your graded page and click on the 'E-Mail Results' button. Please DO NOT forward your results unless your lecturer has specifically requested that you do so.

	Bulging Stomach Restaurants, Inc., has estimated that a proposed project's 8-year net cash benefit will be $4,000 per year for years 1 through 8, with an additional terminal benefit of $8,000 at the end of the eighth year. Assuming that these cash inflows satisfy exactly Bulging's required rate of return of 8 percent, the project's initial cash outflow is closest to which of the following four possible answers?   $27,309 $25,149 $14,851 $40,000

	Which of the following statements regarding cash flow patterns (for time periods 0, 1, 2, 3, and 4) is correct?   The sequence of -$100, $50, $40, $60, and $50 is a nonconventional cash flow pattern. The sequence of -$100, $600, -$1,100, $600, and $20 has at most two internal rates of return. The sequence of +$100, -$1,100, and $1,600 is a conventional cash flow pattern. The sequence of -$50, $50, $70, $60, and -$150 has at most two internal rates of return.

	To the nearest dollar, what is the net present value of a replacement project whose cash flows are -$104,000; $34,444; $39,877; $25,000; and $52,800 for years 0 through 4, respectively? The firm has decided to assume that the appropriate cost of capital is 10% and the appropriate risk-free rate is 6%.   $15,115 $26,798 $33,346 $48,121

	You must decide between two mutually exclusive projects. Project A has cash flows of -$10,000; $5,000; $5,000; and $5,000; for years 0 through 3, respectively. Project B has cash flows of -$20,000; $10,000; $10,000; and $10,000; for years 0 through 3, respectively. The firm has decided to assume that the appropriate cost of capital is 10% for both projects. Which project should be chosen? Why?   A; Project A's NPV > Project B's NPV. A or B; Makes no difference which you choose because the IRR for A is identical to the IRR for B and both IRRs are greater than 10 percent, the cost of capital. B; Project B's NPV > Project A's NPV. Neither A nor B; The NPVs of both projects are negative.

Which of the following statements is true about internal rate of return?

Which of the following statements concerning the internal rate of return IRR is true?

Which is the correct statement about the IRR?

Why it is important to consider the internal rate of return in choosing the project?