Q1. Jack Smith, CFA, is analyzing independent investment projects X and Y. Smith has calculated the net present value (NPV) and internal rate of return (IRR) for each project: Project X: NPV = $250; IRR = 15% Project Y: NPV = $5,000; IRR = 8% Smith should make which of the following recommendations concerning the two projects? A) Accept Project X only. B) Accept both projects. C) Accept Project Y only. Q2. Which of the following statements regarding making investment decisions using net present value (NPV) and internal rate of return (IRR) is least accurate? A) If two projects are mutually exclusive, one should always choose the project with the highest IRR. B) Projects with a positive NPVs increase shareholder wealth. C) If a firm undertakes a zero-NPV project, the firm will get larger, but shareholder wealth will not change.
Q3. Williams Warehousing currently has a warehouse lease that calls for five annual payments of $120,000. The warehouse owner, who needs cash, is offering Williams a deal wherein Williams will pay $200,000 this year and then pay only $80,000 each of the remaining 4 years. (Assume that all lease payments are made at the beginning of the year.) Should Williams Warehousing accept the offer if its required rate of return is 9%, and why? A) Yes, there is a savings of $45,494 in present value terms. B) Yes, there is a savings of $49,589 in present value terms. C) No, there is an additional $80,000 payment in this year. | 
发表于 2008-12-30 16:19
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