31 the following details are provided by doppler systems project a project b project 4306390

31 the following details are provided by doppler systems project a project b project 4306390

31) The following details are provided by Doppler Systems:

Project A

Project B

Project C

Project D

Initial investment

$420,000

$200,000

$550,000

$500,000

PV of cash inflows

$570,000

$380,000

$800,000

$390,000

Payback period (years)

3.6

3.2

4.0

2.0

NPV of project

$150,000

$180,000

$250,000

($110,000)

Calculate the profitability index for Project A.

A) 0.98

B) 1.08

C) 1.36

D) 1.66

32) The following details are provided by Doppler Systems:

Project A

Project B

Project C

Project D

Initial investment

$420,000

$200,000

$550,000

$500,000

PV of cash inflows

$570,000

$380,000

$800,000

$390,000

Payback period (years)

3.6

3.2

4.0

2.0

NPV of project

$150,000

$180,000

$250,000

($110,000)

What is the profitability index for Project B?

A) 1.98

B) 1.38

C) 1.26

D) 1.90

33) The following details are provided by Doppler Systems:

Project A

Project B

Project C

Project D

Initial investment

$420,000

$200,000

$550,000

$500,000

PV of cash inflows

$570,000

$380,000

$800,000

$390,000

Payback period (years)

3.6

3.2

4.0

2.0

NPV of project

$150,000

$180,000

$250,000

($110,000)

What is the profitability index for Project C?

A) 1.45

B) 1.38

C) 1.26

D) 1.23

34) The following details are provided by Doppler Systems:

Project A

Project B

Project C

Project D

Initial investment

$420,000

$200,000

$550,000

$500,000

PV of cash inflows

$570,000

$380,000

$800,000

$390,000

Payback period (years)

3.6

3.2

4.0

2.0

NPV of project

$150,000

$180,000

$250,000

($110,000)

Which project has the highest profitability index?

A) Project A

B) Project B

C) Project C

D) Project D

35) Which of the following best describes sensitivity analysis?

A) setting the budgets of an investment

B) analyzing the effect of an investment on workers' morale

C) evaluating the different investment options available

D) testing the results of an investment analysis with varying assumptions

36) Which of the following is the rate of return, based on discounted cash flows, a company can expect to earn by investing in a capital asset?

A) accounting rate of return

B) bank interest rate

C) internal rate of return

D) return on investment

37) Which of the following best describes the internal rate of return?

A) discount rate at which the net present value the investment is zero

B) discount rate that is used to evaluate funds borrowed from a lender for profitability

C) the ratio of average annual income to average amount invested

D) the rate at which the profitability of an investment increases

38) At the internal rate of return (IRR), the present value of cash inflows will be equal to the ________.

A) initial investment

B) residual value

C) average operating income

D) profit from the project

39) A company is considering an iron ore extraction project that requires an initial investment of $1,000,000 and will yield annual cash flows of $350,263 for 4 years. The company's hurdle rate is 9%. Calculate IRR.

A) 15%

B) 18%

C) 12%

D) 10%

40) Nobell Machines Company is evaluating an investment of $1,000,000 which will yield net cash inflows of $142,369 per year for 10 years with no residual value. What is the internal rate of return?

Present value of annuity of $1:

5%

6%

7%

8%

1

0.952

0.943

0.935

0.926

2

1.859

1.833

1.808

1.783

3

2.723

2.673

2.624

2.577

4

3.546

3.465

3.387

3.312

5

4.329

4.212

4.1

3.993

6

5.076

4.917

4.767

4.623

7

5.786

5.582

5.389

5.206

8

6.463

6.21

5.971

5.747

9

7.108

6.802

6.515

6.247

10

7.722

7.36

7.024

6.71

A) 6%

B) 7%

C) 8%

D) 9%

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