NPV
required return
Year
projected
earnings
after tax
0.14
0.14
0
1
2
0.14
3
0.14
4
0.14
5
0.14
6
(250,000) 118,256 80,824
141,069
181,916
193,095
228,476
323,229
(250,000) 103,733 62,191
95,218
107,709 100,287
104,091
1. This project's IRR is:
A. greater than the WACC
B. equal to $323,299
C. both A and B
D. none of these
2. If this project's required return increased to 16%, its
A. NPV would fall by 2%
B. IRR would decrease
C. IRR would increase
D. none of these
3. This project's Profitability Index (PI) says that for every dollar of initial investment, we would expect
to
A. only recover $0.80
B. make the $1 back plus $0.29
C. make the $1 back plus $1.29
D. none of these
4. What is the value of this project in today's dollars with a 14% cost of capital?
A. $323,229
B. $323,229 + $250,000
C. $323,229 - $250,000
D. none of these
5. Due to discounting, it is clear that higher discount rates
A. favor projects with quicker payouts
B. favor projects with large net benefits, but not received until much later in the future
C. both A and B
D. none of these