Project 1 requires an initial investment on $50,000 and has an internal rate of return (IRR) of 18%. A mutually exclusive alternative, Project 2, requires an investment of $70,000 and has an IRR of 23%. Which of the following statements is true concern- ing the rate of return on the incremental $20,000 investment? (a) It is less than 18%. (b) It is between 18 and 23%. (c) It is greater than 23%. (d) It cannot be determined from the data given.

Project S requires an initial outlay at t= 0 of $16,000, and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t= 0 of $27,500, and its expected cash flows would be $10,150 per year for 5 years. If both projects have a WACC of 14%, which project would you recommend? Select the correct answer. Ca. Project S, because the NPVs > NPVL. Ob. Both Projects S and L, because both projects have IRR's > 0. Oc. Both Projects S and L, because both projects have NPV's > 0. Od. Project I because the NPVL > NPVs. Oe. Neither Project S nor L, because each project's NPV < 0.

The following information is available on two mutually exclusive projects. All numbers are in ‘000s. Project             Year 0             Year 1             Year 2             Year 3             Year 4 A                     $700                $300                $300                $400                $400 B                     $700                $600                $300                $200                $100   a: If the minimum acceptable rate of return is 10%, which project should be selected using the Net Present Value (NPV) method? Which project should be selected if the Internal Rate of Return (IRR) method is used?   b: At what cross‐over rate would the firm be indifferent between the two projects? What is the NPV for both projects at the crossover rate?   c: How much should cash flow in year 3 for project B increase or decrease in order for NPV(B) to be equal to NPV(A)?

Project S requires an initial outlay at t = 0 of $19,000, and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $37,000, and its expected cash flows would be $10,800 per year for 5 years. If both projects have a WACC of 13%, which project would you recommend? Select the correct answer.   a. Project L, because the NPVL > NPVS.     b. Neither Project S nor L, because each project's NPV < 0.     c. Both Projects S and L, because both projects have NPV's > 0.     d. Both Projects S and L, because both projects have IRR's > 0.     e. Project S, because the NPVS > NPVL.

Project X has the following cash flows: C0 = -1,250, C1 = 750, and C2 = 900. If the IRR of the project is 20 percent and if the cost of capital is 25 percent, you would need more information accept the project reject the project be indifferent

A project has an initial investment of 100. You have come up with the following estimates of the project's cash flows (there are no taxes): Revenues Costs Pessimistic 15 8 Multiple Choice -30, +20, +70. Suppose the cash flows are perpetuities and the cost of capital is 10 percent. Conduct a sensitivity analysis of the project's NPV to variations in revenues. (Answers appear in order: [Pessimistic, Most Likely, Optimistic].) -50, +50, +70. -100, -50, +80. Most Likely +5, +11, +18. 20 8 Optimistic 25 8