1. Which of the following statements least accurately describes the IRR and NPV methods?

a. The discount rate that gives an investment an NPV of zero is the investment's IRR.
b. The IRR is the discount rate that equates the present value of cash inflows with the
present value of cash outflows.
c. If the NPV and IRR methods give conflicting decisions for mutually exclusive projects,
the IRR decision should be used to select the project.
d. The NPV method assumes that a project's cash flows will be reinvested at the cost of
capital, while the IRR method assumes they will be reinvested at the IRR.

2. Which of the following statements least accurately describes the IRR and NPV methods?
a. A project's IRR can be positive even if the NPV is negative.
b. A project with an IRR equal to the cost of capital will have an NPV of zero,
c. A project's NPV may be positive even if the IRR is less than the cost of capital.
d. Shareholder wealth will decrease if a company takes on a project with a negative NPV.

3. Which of the following statements least accurately describes the IRR and NPV methods?
a. The NPV tells how much the value of the firm has increased if you accept the project
b. When evaluating independent projects, the IRR and NPV methods always yield the same
accept/reject decisions.
c. When selecting between mutually exclusive projects, the NPV and IRR methods may
give conflicting accept/reject decisions.
d. When selecting between mutually exclusive projects, the project with the highest NPV
should be accepted regardless of the sign of the NPV calculation.

4. What should an analyst recommend based on the following information for two independent projects?
Project Investment at t = 0 Cash Flow at t = 1 IRR NPV at 12%

A -$3,000 $5,000 66.67% $1,464.29

B -$10,000 $15,000 50.00% $3,392.86
a. Reject A and reject B.
b. Accept A and reject B.
c. Reject A and accept B.
d. Accept A and accept B.

5. What should an analyst recommend based on the following information for two mutually
exclusive projects?
Project Investment at t = 0 Cash Flow at t = 1 IRR NPV at 12%

A -$3,000 $5,000 66.67% $1,464.29

B -$10,000 $15,000 50.00% $3,392.86
a. Reject A and reject B.
b. Accept A and reject B.
c. Reject A and accept B.
d. Accept A and accept B.
 Page 2 of 4

6. A company is considering entering into a joint venture that will require an investment of $10
million. The project is expected to generate cash flows of $4 million, $3 million, and $4
million in each of the next three years, respectively. Assuming a discount rate of 10 percent,
what is the project's NPV?
a. -$879,000.
b. -$309,000.
c. +$243,000.
d. -$1,523,000.

7. A company is considering entering into a joint venture that will require an investment of $10
million. Theproject is expected to generate cash flows of $4 million, $3 million, and $4
million in each of the next three years, respectively. Assuming a discount rate of 10 percent,
what is the project's approximate IRR?
a. 5%.
b. 10%.
c. 15%.
d. 20%.

8. Goodeal Inc. is considering the purchase of a new material handling system for a cost of $15
million. This system is expected to generate a positive cash flow of $1.8 million per year in
perpetuity. What is the NPV of the proposed investment if the appropriate discount race is
10.5 percent?
a. $2,142,857.
b. $13,200,000.
c. $16,575,000.
d. $17,142,857.

9. Goodeal Inc. is considering the purchase of a new material handling system for a cost of $15
million. This system is expected to generate a positive cash flow of $1.8 million per year in
perpetuity. What is the IRR of the proposed investment if the appropriate hurdle rate is 10.5
percent?
a. 8.33%.
b. 10.5%.
c. 12.0%.
d. 17.1%.

10. Should a company accept a project that has an IRR of 14 percent and an NPV of $2.8 million
if the cost of capital is 12 percent?
a. Yes, based only on the NPV.
b. Yes, based onlyon the IRR.
c. Yes, based on the NPV and the IRR.
d. No, based on both the NPV and the IRR.
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 Page 3 of 4
1. Which of the following statements least accurately describes the IRR and NPV methods?
a. The discount rate that gives an investment an NPV of zero is the investment's IRR.
b. The IRR is the discount rate that equates the present value of cash inflows with the
present value of cash outflows.
c. If the NPV and IRR methods give conflicting decisions for mutually exclusive
projects, the IRR decision should be used to select the project.
d. The NPV method assumes that a project's cash flows will be reinvested at the cost of
capital, while the IRR method assumes they will be reinvested at the IRR.

2. Which of the following statements least accurately describes the IRR and NPV methods?
a. A project's IRR can be positive even if the NPV is negative.
b. A project with an IRR equal to the cost of capital will have an NPV of zero,
c. A project's NPV may be positive even if the IRR is less than the cost of capital.
d. Shareholder wealth will decrease if a company takes on a project with a negative NPV.

3. Which of the following statements least accurately describes the IRR and NPV methods?
a. The NPV tells how much the value of the firm has increased if you accept the project
b. When evaluating independent projects, the IRR and NPV methods always yield the same
accept/reject decisions.
c. When selecting between mutually exclusive projects, the NPV and IRR methods may
give conflicting accept/reject decisions.
d. When selecting between mutually exclusive projects, the project with the highest
NPV should be accepted regardless of the sign of the NPV calculation.

4. What should an analyst recommend based on the following information for two independent projects?
Project Investment at t = 0 Cash Flow at t = 1 IRR NPV at 12%

A -$3,000 $5,000 66.67% $1,464.29

B -$10,000 $15,000 50.00% $3,392.86
a. Reject A and reject B.
b. Accept A and reject B.
c. Reject A and accept B.
d. Accept A and accept B.

5. What should an analyst recommend based on the following information for two mutually
exclusive projects?
Project Investment at t = 0 Cash Flow at t = 1 IRR NPV at 12%

A -$3,000 $5,000 66.67% $1,464.29

B -$10,000 $15,000 50.00% $3,392.86
a. Reject A and reject B.
b. Accept A and reject B.
c. Reject A and accept B.
d. Accept A and accept B.
3
 Page 4 of 4

6. A company is considering entering into a joint venture that will require an investment of $10
million. The project is expected to generate cash flows of $4 million, $3 million, and $4
million in each of the next three years, respectively. Assuming a discount rate of 10 percent,
what is the project's NPV?
a. -$879,000.
b. -$309,000.
c. +$243,000.
d. -$1,523,000.

7. A company is considering entering into a joint venture that will require an investment of $10
million. Theproject is expected to generate cash fiows of $4 million, $3 million, and $4
million in each of the next three years, respectively. Assuming a discount rate of 10 percent,
what is the project's approximate IRR?
a. 5%.
b. 10%.
c. 15%.
d. 20%.

8. Goodeal Inc. is considering the purchase of a new material handling system for a cost of $15
million. This system is expected to generate a positive cash flow of $1.8 million per year in
perpetuity. What is the NPV of the proposed investment if the appropriate discount race is
10.5 percent?
a. $2,142,857.
b. $13,200,000.
c. $16,575,000.
d. $17,142,857.

9. Goodeal Inc. is considering the purchase of a new material handling system for a cost of $15
million. This system is expected to generate a positive cash flow of $1.8 million per year in
perpetuity. What is the IRR of the proposed investment if the appropriate hurdle rate is 10.5
percent?
a. 8.33%.
b. 10.5%.
c. 12.0%.
d. 17.1%.

10. Should a company accept a project that has an IRR of 14 percent and an NPV of $2.8 million
if the cost of capital is 12 percent?
a. Yes, based only on the NPV.
b. Yes, based onlyon the IRR.
c. Yes, based on the NPV and the IRR.
d. No, based on both the NPV and the IRR.
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