MBA 621 Sample Questions & Answers Verified
100% Correct
the project's NPV over a range of discount rates.
The NPV profile graphs:
the project's NPV over a range of discount rates.
the project's IRR over a range of discount rates.
the project's cash flows over a range of NPVs.
the project's IRR over a range of NPVs.
2
This project begins with a negative cash flow, then continues with 11 positive cash flows and
finally ends at one last negative cash flow. Thus there are two changes in the signs of the cash
flows so there will be two IRRs.
Rearden Metals is considering opening a strip mining operation to provide some of the raw
materials needed in producing Rearden metal. The initial purchase of the land and the
associated costs of opening up mining operations will cost $100 million today. The mine is
expected to generate $16 million worth of ore per year for the next 12 years. At the end of the
12th year Rearden will need to spend $20 million to restore the land to its original pristine
nature appearance. The number of potential IRRs that exist for Rearden's mining operation is
equal to:
0
1
2
12
The fundamental investment rule is the NPV investment rule.
Which of the following statements is TRUE?
The IRR investment rule will identify the correct decision in all situations.
If the NPV and IRR decision rules contract in a given project, we should follow the IRR rule.
,If your cost of capital estimate has potential small estimation error, you cannot apply the IRR
decision rule.
The fundamental investment rule is the NPV investment rule.
21.6%
CF0 = -100 CF1 = 40 CF2 = 50 CF3 = 60 Compute IRR = 21.64%
CF0 = -100 CF1 = 40 CF2 = 50 CF3 = 60 Compute IRR = 21.64%
The internal rate of return (IRR) for project A is closest to:
7.7%
21.6%
23.3%
42.9%
23.3%
CF0 = -73 CF1 = 30 CF2 = 30 CF3 = 30 CF4 = 30 Compute IRR = 23.34%
CF0 = -73 CF1 = 30 CF2 = 30 CF3 = 30 CF4 = 30 Compute IRR = 23.34%
The internal rate of return (IRR) for project B is closest to:
21.6%
23.3%
42.9%
7.7%
You should accept project A since its IRR > 15%.
Which of the following statements is correct?
You should accept project A since its IRR > 15%.
You should reject project B since its NPV > 0.
Your should accept project A since its NPV < 0.
You should accept project B since its IRR < 15%.
, A and B are correct.
The internal rate of return rule can result in the wrong decision if the projects being compared
have:
differences in scale.
differences in timing.
differences in NPV.
A and B are correct.
invest in project B since NPVB > NPVA.
NPVA = -100 + 40/(1.15)1 + 50/(1.15)2 + 60/(1.15)3 = 12.04NPVB = -73 + 30/(1.15)1 +
30/(1.15)2 + 30/(1.15)3 + 30/(1.15)4 = 12.64IRR A CF0 = -100 CF1 = 40 CF2 = 50 CF3 = 60
Compute IRR = 21.65%IRR B CF0 = -73 CF1 = 30 CF2 = 30 CF3 = 30 CF4 = 30 Compute IRR =
23.34%
NPVA = -100 + 40/(1.15)1 + 50/(1.15)2 + 60/(1.15)3 = 12.04NPVB = -73 + 30/(1.15)1 +
30/(1.15)2 + 30/(1.15)3 + 30/(1.15)4 = 12.64IRR A CF0 = -100 CF1 = 40 CF2 = 50 CF3 = 60
Compute IRR = 21.65%IRR B CF0 = -73 CF1 = 30 CF2 = 30 CF3 = 30 CF4 = 30 Compute IRR =
23.34%
PreviousNext
Assume that projects A and B are mutually exclusive. The correct investment decision and the
best rational for that decision is to:
invest in project A since NPVB < NPVA.
invest in project B since IRRB > IRRA.
invest in project B since NPVB > NPVA.
invest in project A since NPVA > 0.
A capital budget lists the projects and investments that a company plans to undertake during
the coming year.
Which of the following statements is TRUE?
100% Correct
the project's NPV over a range of discount rates.
The NPV profile graphs:
the project's NPV over a range of discount rates.
the project's IRR over a range of discount rates.
the project's cash flows over a range of NPVs.
the project's IRR over a range of NPVs.
2
This project begins with a negative cash flow, then continues with 11 positive cash flows and
finally ends at one last negative cash flow. Thus there are two changes in the signs of the cash
flows so there will be two IRRs.
Rearden Metals is considering opening a strip mining operation to provide some of the raw
materials needed in producing Rearden metal. The initial purchase of the land and the
associated costs of opening up mining operations will cost $100 million today. The mine is
expected to generate $16 million worth of ore per year for the next 12 years. At the end of the
12th year Rearden will need to spend $20 million to restore the land to its original pristine
nature appearance. The number of potential IRRs that exist for Rearden's mining operation is
equal to:
0
1
2
12
The fundamental investment rule is the NPV investment rule.
Which of the following statements is TRUE?
The IRR investment rule will identify the correct decision in all situations.
If the NPV and IRR decision rules contract in a given project, we should follow the IRR rule.
,If your cost of capital estimate has potential small estimation error, you cannot apply the IRR
decision rule.
The fundamental investment rule is the NPV investment rule.
21.6%
CF0 = -100 CF1 = 40 CF2 = 50 CF3 = 60 Compute IRR = 21.64%
CF0 = -100 CF1 = 40 CF2 = 50 CF3 = 60 Compute IRR = 21.64%
The internal rate of return (IRR) for project A is closest to:
7.7%
21.6%
23.3%
42.9%
23.3%
CF0 = -73 CF1 = 30 CF2 = 30 CF3 = 30 CF4 = 30 Compute IRR = 23.34%
CF0 = -73 CF1 = 30 CF2 = 30 CF3 = 30 CF4 = 30 Compute IRR = 23.34%
The internal rate of return (IRR) for project B is closest to:
21.6%
23.3%
42.9%
7.7%
You should accept project A since its IRR > 15%.
Which of the following statements is correct?
You should accept project A since its IRR > 15%.
You should reject project B since its NPV > 0.
Your should accept project A since its NPV < 0.
You should accept project B since its IRR < 15%.
, A and B are correct.
The internal rate of return rule can result in the wrong decision if the projects being compared
have:
differences in scale.
differences in timing.
differences in NPV.
A and B are correct.
invest in project B since NPVB > NPVA.
NPVA = -100 + 40/(1.15)1 + 50/(1.15)2 + 60/(1.15)3 = 12.04NPVB = -73 + 30/(1.15)1 +
30/(1.15)2 + 30/(1.15)3 + 30/(1.15)4 = 12.64IRR A CF0 = -100 CF1 = 40 CF2 = 50 CF3 = 60
Compute IRR = 21.65%IRR B CF0 = -73 CF1 = 30 CF2 = 30 CF3 = 30 CF4 = 30 Compute IRR =
23.34%
NPVA = -100 + 40/(1.15)1 + 50/(1.15)2 + 60/(1.15)3 = 12.04NPVB = -73 + 30/(1.15)1 +
30/(1.15)2 + 30/(1.15)3 + 30/(1.15)4 = 12.64IRR A CF0 = -100 CF1 = 40 CF2 = 50 CF3 = 60
Compute IRR = 21.65%IRR B CF0 = -73 CF1 = 30 CF2 = 30 CF3 = 30 CF4 = 30 Compute IRR =
23.34%
PreviousNext
Assume that projects A and B are mutually exclusive. The correct investment decision and the
best rational for that decision is to:
invest in project A since NPVB < NPVA.
invest in project B since IRRB > IRRA.
invest in project B since NPVB > NPVA.
invest in project A since NPVA > 0.
A capital budget lists the projects and investments that a company plans to undertake during
the coming year.
Which of the following statements is TRUE?
