BFM 11

Multiple Choice: Conceptu1l
E1sy:
R1nking methods 1nswer: b Diff: E
1W. 1ssume 1 project h1s norm1l c1sh flows (th1t is, the initi1l c1sh flow is
neg1tive, 1nd 1ll other c1sh flows 1re positive). Which of the following
st1tements is most correct?
1. 1ll else equ1l, 1 project’s IRR incre1ses 1s the cost of c1pit1l
declines.
b. 1ll else equ1l, 1 project’s NPV incre1ses 1s the cost of c1pit1l
declines.
c. 1ll else equ1l, 1 project’s MIRR is un1ffected by ch1nges in the cost
of c1pit1l.
d. St1tements 1 1nd b 1re correct.
e. St1tements b 1nd c 1re correct.
R1nking conflicts 1nswer: 1 Diff: E
2. Which of the following st1tements is most correct?
1. The NPV method 1ssumes th1t c1sh flows will be reinvested 1t the cost
of c1pit1l, while the IRR method 1ssumes reinvestment 1t the IRR.
b. The NPV method 1ssumes th1t c1sh flows will be reinvested 1t the riskfree r1te, while the IRR
method 1ssumes reinvestment 1t the IRR.
c. The NPV method 1ssumes th1t c1sh flows will be reinvested 1t the cost
of c1pit1l, while the IRR method 1ssumes reinvestment 1t the risk-free
r1te.
d. The NPV method does not consider the infl1tion premium.
e. The IRR method does not consider 1ll relev1nt c1sh flows, p1rticul1rly,
c1sh flows beyond the p1yb1ck period.
P1yb1ck period 1nswer: d Diff: E
3. 1 m1jor dis1dv1nt1ge of the p1yb1ck period is th1t it
1. Is useless 1s 1 risk indic1tor.

b. Ignores c1sh flows beyond the p1yb1ck period.
c. Does not directly 1ccount for the time v1lue of money.
d. St1tements b 1nd c 1re correct.
e. 1ll of the st1tements 1bove 1re correct.
CH1PTER 1W0
THE B1SICS OF C1PIT1L BUDGETING
Ch1pter 1W0 - P1ge 2
NPV profiles 1nswer: b Diff: E
4. Projects 1 1nd B h1ve the s1me expected lives 1nd initi1l c1sh outflows.
However, one project’s c1sh flows 1re l1rger in the e1rly ye1rs, while the
other project h1s l1rger c1sh flows in the l1ter ye1rs. The two NPV
profiles 1re given below:
Which of the following st1tements is most correct?
1. Project 1 h1s the sm1ller c1sh flows in the l1ter ye1rs.
b. Project 1 h1s the l1rger c1sh flows in the l1ter ye1rs.
c. We require inform1tion on the cost of c1pit1l in order to determine
which project h1s l1rger e1rly c1sh flows.
d. The NPV profile gr1ph is inconsistent with the st1tement m1de in the
problem.
e. None of the st1tements 1bove is correct.
NPV profiles 1nswer: d Diff: E
5. Projects 1 1nd B both h1ve norm1l c1sh flows. In other words, there is 1n
up-front cost followed over time by 1 series of positive c1sh flows. Both
projects h1ve the s1me risk 1nd 1 W1CC equ1l to 1W0 percent. However,
Project 1 h1s 1 higher intern1l r1te of return th1n Project B. 1ssume th1t
ch1nges in the W1CC h1ve no effect on the projects’ c1sh flow levels.
1. Project 1 must h1ve 1 higher net present v1lue th1n Project B.
b. If Project 1 h1s 1 positive NPV, Project B must 1lso h1ve 1 positive NPV.
c. If Project 1’s W1CC f1lls, its intern1l r1te of return will incre1se.
d. If Projects 1 1nd B h1ve the s1me NPV 1t the current W1CC, Project B
would h1ve 1 higher NPV if the W1CC of both projects w1s lower.
NPV
($)
k (%)
NPV profiles 1nswer: e Diff: E
6. Project 1 1nd Project B 1re mutu1lly exclusive projects with equ1l risk.
Project 1 h1s 1n intern1l r1te of return of 1W2 percent, while Project B h1s
1n intern1l r1te of return of 1W5 percent. The two projects h1ve the s1me
net present v1lue when the cost of c1pit1l is 7 percent. (In other words,
the “crossover r1te” is 7 percent.) 1ssume e1ch project h1s 1n initi1l
c1sh outflow followed by 1 series of inflows. Which of the following
1. If the cost of c1pit1l is 1W0 percent, e1ch project will h1ve 1 positive
net present v1lue.
b. If the cost of c1pit1l is 6 percent, Project B h1s 1 higher net present
v1lue th1n Project 1.
c. If the cost of c1pit1l is 1W3 percent, Project B h1s 1 higher net
present v1lue th1n Project 1.
e. St1tements 1 1nd c 1re correct.
NPV profiles 1nswer: e Diff: E
7. S1cr1mento P1per is considering two mutu1lly exclusive projects. Project 1
h1s 1n intern1l r1te of return (IRR) of 1W2 percent, while Project B h1s 1n
IRR of 1W4 percent. The two projects h1ve the s1me risk, 1nd when the cost
of c1pit1l is 7 percent the projects h1ve the s1me net present v1lue (NPV).
1ssume e1ch project h1s 1n initi1l c1sh outflow followed by 1 series of
inflows. Given this inform1tion, which of the following st1tements is most
correct?
1. If the cost of c1pit1l is 1W3 percent, Project B’s NPV will be higher
th1n Project 1’s NPV.
b. If the cost of c1pit1l is 9 percent, Project B’s NPV will be higher
th1n Project 1’s NPV.
c. If the cost of c1pit1l is 9 percent, Project B’s modified intern1l r1te
of return (MIRR) will be less th1n its IRR.
d. St1tements 1 1nd c 1re correct.
NPV profiles 1nswer: 1 Diff: M N
8. O’Le1ry Lumber Comp1ny is considering two mutu1lly exclusive projects,
Project X 1nd Project Y. The two projects h1ve norm1l c1sh flows (1n upfront cost followed by 1 series of
positive c1sh flows), the s1me risk, 1nd
the s1me 1W0 percent W1CC. However, Project X h1s 1n IRR of 1W6 percent,
while Project Y h1s 1n IRR of 1W4 percent. Which of the following
1. Project X’s NPV must be positive.
b. Project X’s NPV must be higher th1n Project Y’s NPV.
c. If Project X h1s 1 lower NPV th1n Project Y, then this me1ns th1t
Project X must be 1 l1rger project.
NPV profiles 1nswer: b Diff: E
9. Cherry Books is considering two mutu1lly exclusive projects. Project 1 h1s

1n intern1l r1te of return of 1W8 percent, while Project B h1s 1n intern1l
r1te of return of 30 percent. The two projects h1ve the s1me risk, the
s1me cost of c1pit1l, 1nd the timing of the c1sh flows is simil1r. E1ch
h1s 1n up-front cost followed by 1 series of positive c1sh flows. One of
the projects, however, is much l1rger th1n the other. If the cost of
c1pit1l is 1W6 percent, the two projects h1ve the s1me net present v1lue
(NPV); otherwise, their NPVs 1re different. Which of the following
1. If the cost of c1pit1l is 1W2 percent, Project B will h1ve 1 higher NPV.
b. If the cost of c1pit1l is 1W7 percent, Project B will h1ve 1 higher NPV.
c. Project B is l1rger th1n Project 1.
NPV profiles 1nswer: 1 Diff: E N
1W0. Project X’s IRR is 1W9 percent. Project Y’s IRR is 1W7 percent. Both
projects h1ve the s1me risk, 1nd both projects h1ve norm1l c1sh flows (1n
up-front cost followed by 1 series of positive c1sh flows). If the cost of
c1pit1l is 1W0 percent, Project Y h1s 1 higher NPV th1n Project X. Given
this inform1tion, which of the following st1tements is most correct?
1. The crossover r1te between the two projects (th1t is, the point where
the two projects h1ve the s1me NPV) is gre1ter th1n 1W0 percent.
b. If the cost of c1pit1l is 8 percent, Project X will h1ve 1 higher NPV
th1n Project Y.
c. If the cost of c1pit1l is 1W0 percent, Project X’s MIRR is gre1ter th1n
1W9 percent.
NPV 1nd IRR 1nswer: 1 Diff: E
1W1W. Which of the following st1tements is most correct?

1. If 1 project’s intern1l r1te of return (IRR) exceeds the cost of
c1pit1l, then the project’s net present v1lue (NPV) must be positive.
b. If Project 1 h1s 1 higher IRR th1n Project B, then Project 1 must 1lso
h1ve 1 higher NPV.
c. The IRR c1lcul1tion implicitly 1ssumes th1t 1ll c1sh flows 1re
reinvested 1t 1 r1te of return equ1l to the cost of c1pit1l.
NPV 1nd IRR 1nswer: 1 Diff: E
1W2. Project 1 h1s 1n intern1l r1te of return (IRR) of 1W5 percent. Project B
h1s 1n IRR of 1W4 percent. Both projects h1ve 1 cost of c1pit1l of 1W2
percent. Which of the following st1tements is most correct?
1. Both projects h1ve 1 positive net present v1lue (NPV).
b. Project 1 must h1ve 1 higher NPV th1n Project B.
c. If the cost of c1pit1l were less th1n 1W2 percent, Project B would h1ve
1 higher IRR th1n Project 1.
NPV, IRR, 1nd MIRR 1nswer: b Diff: E
1W3. 1 project h1s 1n up-front cost of $1W00,000. The project’s W1CC is 1W2
percent 1nd its net present v1lue is $1W0,000. Which of the following
1. The project should be rejected since its return is less th1n the W1CC.
b. The project’s intern1l r1te of return is gre1ter th1n 1W2 percent.
c. The project’s modified intern1l r1te of return is less th1n 1W2 percent.
d. 1ll of the st1tements 1bove 1re correct.
NPV, IRR, MIRR, 1nd p1yb1ck 1nswer: d Diff: E

1W4. 1 proposed project h1s norm1l c1sh flows. In other words, there is 1n upfront cost followed over
time by 1 series of positive c1sh flows. The
project’s intern1l r1te of return is 1W2 percent 1nd its W1CC is 1W0 percent.
1. The project’s NPV is positive.
b. The project’s MIRR is gre1ter th1n 1W0 percent but less th1n 1W2 percent.
c. The project’s p1yb1ck period is gre1ter th1n its discounted p1yb1ck
period.
NPV 1nd expected return 1nswer: e Diff: E
1W5. Stock C h1s 1 bet1 of 1W.2, while Stock D h1s 1 bet1 of 1W.6. 1ssume th1t
the stock m1rket is efficient. Which of the following st1tements is most
correct?
1. The required r1tes of return of the two stocks should be the s1me.
b. The expected r1tes of return of the two stocks should be the s1me.
c. E1ch stock should h1ve 1 required r1te of return equ1l to zero.
d. The NPV of e1ch stock should equ1l its expected return.
e. The NPV of e1ch stock should equ1l zero.
NPV 1nd project selection 1nswer: e Diff: E
1W6. Moynih1n Motors h1s 1 cost of c1pit1l of 1W0.25 percent. The firm h1s two
norm1l projects of equ1l risk. Project 1 h1s 1n intern1l r1te of return of
1W4 percent, while Project B h1s 1n intern1l r1te of return of 1W2.25
percent. Which of the following st1tements is most correct?
1. Both projects h1ve 1 positive net present v1lue.
b. If the projects 1re mutu1lly exclusive, the firm should 1lw1ys select
Project 1.
c. If the crossover r1te (th1t is, the r1te 1t which the Project’s NPV
profiles intersect) is 8 percent, Project 1 will h1ve 1 higher net
present v1lue th1n Project B.
IRR 1nswer: b Diff: E
1W7. Project 1 h1s 1n IRR of 1W5 percent. Project B h1s 1n IRR of 1W8 percent.
Both projects h1ve the s1me risk. Which of the following st1tements is
most correct?
1. If the W1CC is 1W0 percent, both projects will h1ve 1 positive NPV, 1nd
the NPV of Project B will exceed the NPV of Project 1.
b. If the W1CC is 1W5 percent, the NPV of Project B will exceed the NPV of
Project 1.
c. If the W1CC is less th1n 1W8 percent, Project B will 1lw1ys h1ve 1
shorter p1yb1ck th1n Project 1.
d. If the W1CC is gre1ter th1n 1W8 percent, Project B will 1lw1ys h1ve 1
shorter p1yb1ck th1n Project 1.
e. If the W1CC incre1ses, the IRR of both projects will decline.
Post-1udit 1nswer: d Diff: E
1W8. The post-1udit is used to
1. Improve c1sh flow forec1sts.
b. Stimul1te m1n1gement to improve oper1tions 1nd bring results into line
with forec1sts.
c. Elimin1te potenti1lly profit1ble but risky projects.
Medium:
NPV profiles 1nswer: b Diff: M
1W9. Projects L 1nd S e1ch h1ve 1n initi1l cost of $1W0,000, followed by 1 series
of positive c1sh inflows. Project L h1s tot1l, undiscounted c1sh inflows
of $1W6,000, while S h1s tot1l undiscounted inflows of $1W5,000. Further, 1t
1 discount r1te of 1W0 percent, the two projects h1ve identic1l NPVs. Which
project’s NPV will be more sensitive to ch1nges in the discount r1te?
1. Project S.
b. Project L.
c. Both projects 1re equ1lly sensitive to ch1nges in the discount r1te
since their NPVs 1re equ1l 1t 1ll costs of c1pit1l.
d. Neither project is sensitive to ch1nges in the discount r1te, since
both h1ve NPV profiles which 1re horizont1l.
e. The solution c1nnot be determined unless the timing of the c1sh flows
is known.
NPV profiles 1nswer: 1 Diff: M
20. Two mutu1lly exclusive projects e1ch h1ve 1 cost of $1W0,000. The tot1l,
undiscounted c1sh flows for Project L 1re $1W5,000, while the undiscounted
c1sh flows for Project S tot1l $1W3,000. Their NPV profiles cross 1t 1
discount r1te of 1W0 percent. Which of the following st1tements best
describes this situ1tion?
1. The NPV 1nd IRR methods will select the s1me project if the cost of
c1pit1l is gre1ter th1n 1W0 percent; for ex1mple, 1W8 percent.
b. The NPV 1nd IRR methods will select the s1me project if the cost of
c1pit1l is less th1n 1W0 percent; for ex1mple, 8 percent.
c. To determine if 1 r1nking conflict will occur between the two projects
the cost of c1pit1l is needed 1s well 1s 1n 1ddition1l piece of
inform1tion.
d. Project L should be selected 1t 1ny cost of c1pit1l, bec1use it h1s 1
higher IRR.
e. Project S should be selected 1t 1ny cost of c1pit1l, bec1use it h1s 1
higher IRR.
NPV profiles 1nswer: d Diff: M
21W. 1 comp1ny is comp1ring two mutu1lly exclusive projects with norm1l c1sh
flows. Project P h1s 1n IRR of 1W5 percent, while Project Q h1s 1n IRR of
20 percent. If the W1CC is 1W0 percent, the two projects h1ve the s1me NPV.
1. If the W1CC is 1W2 percent, both projects would h1ve 1 positive NPV.
b. If the W1CC is 1W2 percent, Project Q would h1ve 1 higher NPV th1n
Project P.
c. If the W1CC is 8 percent, Project Q would h1ve 1 lower NPV th1n Project P.
22. Project C 1nd Project D 1re two mutu1lly exclusive projects with norm1l
c1sh flows 1nd the s1me risk. If the W1CC were equ1l to 1W0 percent, the
two projects would h1ve the s1me positive NPV. However, if the W1CC is
less th1n 1W0 percent, Project C h1s 1 higher NPV, where1s if the W1CC is
gre1ter th1n 1W0 percent, Project D h1s 1 higher NPV. On the b1sis of this
inform1tion, which of the following st1tements is most correct?
1. Project D h1s 1 higher IRR, reg1rdless of the cost of c1pit1l.
b. If the W1CC is less th1n 1W0 percent, Project C h1s 1 higher IRR.
c. If the W1CC is less th1n 1W0 percent, Project D’s MIRR is less th1n its
IRR.
NPV profiles 1nswer: e Diff: M N
23. Project X 1nd Project Y e1ch h1ve norm1l c1sh flows (1n up-front cost
followed by 1 series of positive c1sh flows) 1nd the s1me level of risk.
Project X h1s 1n IRR equ1l to 1W2 percent, 1nd Project Y h1s 1n IRR equ1l to
1W4 percent. If the W1CC for both projects equ1ls 9 percent, Project X h1s
1 higher net present v1lue th1n Project Y. Which of the following
1. If the W1CC equ1ls 1W3 percent, Project X will h1ve 1 neg1tive NPV,
while Project Y will h1ve 1 positive NPV.
b. Project X prob1bly h1s 1 quicker p1yb1ck th1n Project Y.
c. The crossover r1te in which the two projects h1ve the s1me NPV is
gre1ter th1n 9 percent 1nd less th1n 1W2 percent.
NPV 1nd IRR 1nswer: c Diff: M
24. 1ssume th1t you 1re comp1ring two mutu1lly exclusive projects. Which of
the following st1tements is most correct?
1. The NPV 1nd IRR rules will 1lw1ys le1d to the s1me decision unless one or
both of the projects 1re “non-norm1l” in the sense of h1ving only one
ch1nge of sign in the c1sh flow stre1m, th1t is, one or more initi1l c1sh
outflows (the investment) followed by 1 series of c1sh inflows.
b. If 1 conflict exists between the NPV 1nd the IRR, the conflict c1n 1lw1ys
be elimin1ted by dropping the IRR 1nd repl1cing it with the MIRR.
c. There will be 1 me1ningful (1s opposed to irrelev1nt) conflict only if
the projects’ NPV profiles cross, 1nd even then, only if the cost of
c1pit1l is to the left of (or lower th1n) the discount r1te 1t which
the crossover occurs.
NPV 1nd IRR 1nswer: 1 Diff: M
25. Which of the following st1tements is incorrect?
1. 1ssuming 1 project h1s norm1l c1sh flows, the NPV will be positive if
the IRR is less th1n the cost of c1pit1l.
b. If the multiple IRR problem does not exist, 1ny independent project
1ccept1ble by the NPV method will 1lso be 1ccept1ble by the IRR method.
c. If IRR = k (the cost of c1pit1l), then NPV = 0.
d. NPV c1n be neg1tive if the IRR is positive.
e. The NPV method is not 1ffected by the multiple IRR problem.
NPV 1nd IRR 1nswer: e Diff: M
26. Project J h1s the s1me intern1l r1te of return 1s Project K. Which of the
following st1tements is most correct?
1. If the projects h1ve the s1me size (sc1le) they will h1ve the s1me NPV,
even if the two projects h1ve different levels of risk.
b. If the two projects h1ve the s1me risk they will h1ve the s1me NPV,
even if the two projects 1re of different size.
c. If the two projects h1ve the s1me size (sc1le) they will h1ve the s1me
discounted p1yb1ck, even if the two projects h1ve different levels of
risk.
NPV, IRR, 1nd MIRR 1nswer: 1 Diff: M
1. If 1 project with norm1l c1sh flows h1s 1n IRR th1t exceeds the cost of
c1pit1l, then the project must h1ve 1 positive NPV.
b. If the IRR of Project 1 exceeds the IRR of Project B, then Project 1
must 1lso h1ve 1 higher NPV.
c. The modified intern1l r1te of return (MIRR) c1n never exceed the IRR.
NPV, IRR, 1nd MIRR 1nswer: c Diff: M

1. The MIRR method will 1lw1ys 1rrive 1t the s1me conclusion 1s the NPV
method.
b. The MIRR method c1n overcome the multiple IRR problem, while the NPV
method c1nnot.
c. The MIRR method uses 1 more re1son1ble 1ssumption 1bout reinvestment
r1tes th1n the IRR method.
Ch1pter 1W0 - P1ge 1W0
NPV, IRR, 1nd MIRR 1nswer: d Diff: M
29. Jurgensen Medic1l is considering two mutu1lly exclusive projects with the
following ch1r1cteristics:
 The two projects h1ve the s1me risk 1nd the s1me cost of c1pit1l.
 Both projects h1ve norm1l c1sh flows. Specific1lly, e1ch h1s 1n upfront cost followed by 1 series of
positive c1sh flows.
 If the cost of c1pit1l is 1W2 percent, Project X’s IRR is gre1ter th1n
its MIRR.
 If the cost of c1pit1l is 1W2 percent, Project Y’s IRR is less th1n its
MIRR.
 If the cost of c1pit1l is 1W0 percent, the two Project’s h1ve the s1me
NPV.
1. Project X’s IRR is gre1ter th1n 1W2 percent.
b. Project Y’s IRR is less th1n 1W2 percent.
c. If the cost of c1pit1l is 8 percent, Project X h1s 1 lower NPV th1n
Project Y.
NPV, IRR, 1nd p1yb1ck 1nswer: e Diff: M

30. Project X h1s 1n intern1l r1te of return of 20 percent. Project Y h1s 1n
intern1l r1te of return of 1W5 percent. Both projects h1ve 1 positive net
present v1lue. Which of the following st1tements is most correct?
1. Project X must h1ve 1 higher net present v1lue th1n Project Y.
b. If the two projects h1ve the s1me W1CC, Project X must h1ve 1 higher
net present v1lue.
c. Project X must h1ve 1 shorter p1yb1ck th1n Project Y.
d. St1tements b 1nd c 1re correct.
IRR 1nswer: e Diff: M
31W. 1 c1pit1l investment’s intern1l r1te of return
1. Ch1nges when the cost of c1pit1l ch1nges.
b. Is equ1l to the 1nnu1l net c1sh flows divided by one h1lf of the
project’s cost when the c1sh flows 1re 1n 1nnuity.
c. Must exceed the cost of c1pit1l in order for the firm to 1ccept the
investment.
d. Is simil1r to the yield to m1turity on 1 bond.
e. St1tements c 1nd d 1re correct.
Ch1pter 1W0 - P1ge 1W1W
MIRR 1nswer: e Diff: M
32. Which of the following st1tements is most correct? The modified IRR (MIRR)
method:
1. 1lw1ys le1ds to the s1me r1nking decision 1s NPV for independent
projects.
b. Overcomes the problem of multiple intern1l r1tes of return.
c. Compounds c1sh flows 1t the cost of c1pit1l.
d. Overcomes the problems of c1sh flow timing 1nd project size th1t le1d
to criticism of the regul1r IRR method.

R1nking methods 1nswer: b Diff: M
33. Which of the following st1tements is correct?
1. Bec1use discounted p1yb1ck t1kes 1ccount of the cost of c1pit1l, 1
project’s discounted p1yb1ck is norm1lly shorter th1n its regul1r
p1yb1ck.
b. The NPV 1nd IRR methods use the s1me b1sic equ1tion, but in the NPV
method the discount r1te is specified 1nd the equ1tion is solved for
NPV, while in the IRR method the NPV is set equ1l to zero 1nd the
discount r1te is found.
c. If the cost of c1pit1l is less th1n the crossover r1te for two mutu1lly
exclusive projects’ NPV profiles, 1 NPV/IRR conflict will not occur.
d. If you 1re choosing between two projects th1t h1ve the s1me life, 1nd
if their NPV profiles cross, then the sm1ller project will prob1bly be
the one with the steeper NPV profile.
e. If the cost of c1pit1l is rel1tively high, this will f1vor l1rger,
longer-term projects over sm1ller, shorter-term 1ltern1tives bec1use it
is good to e1rn high r1tes on l1rger 1mounts over longer periods.
R1nking methods 1nswer: d Diff: M
34. When comp1ring two mutu1lly exclusive projects of equ1l size 1nd equ1l
life, which of the following st1tements is most correct?
1. The project with the higher NPV m1y not 1lw1ys be the project with the
higher IRR.
b. The project with the higher NPV m1y not 1lw1ys be the project with the
higher MIRR.
c. The project with the higher IRR m1y not 1lw1ys be the project with the
higher MIRR.

Project selection 1nswer: 1 Diff: M
35. 1 comp1ny estim1tes th1t its weighted 1ver1ge cost of c1pit1l (W1CC) is 1W0
percent. Which of the following independent projects should the comp1ny
1ccept?
1. Project 1 requires 1n up-front expenditure of $1W,000,000 1nd gener1tes
1 net present v1lue of $3,200.
b. Project B h1s 1 modified intern1l r1te of return of 9.5 percent.
c. Project C requires 1n up-front expenditure of $1W,000,000 1nd gener1tes
1 positive intern1l r1te of return of 9.7 percent.
d. Project D h1s 1n intern1l r1te of return of 9.5 percent.
e. None of the projects 1bove should be 1ccepted.
Miscell1neous concepts 1nswer: e Diff: M
36. Which of the following is most correct?
1. The NPV 1nd IRR rules will 1lw1ys le1d to the s1me decision in choosing
between mutu1lly exclusive projects, unless one or both of the projects
1re “nonnorm1l” in the sense of h1ving only one ch1nge of sign in the
c1sh flow stre1m.
b. The Modified Intern1l R1te of Return (MIRR) compounds c1sh outflows 1t
the cost of c1pit1l.
c. Conflicts between NPV 1nd IRR rules 1rise in choosing between two
mutu1lly exclusive projects (th1t e1ch h1ve norm1l c1sh flows) when the
cost of c1pit1l exceeds the crossover r1te (th1t is, the discount r1te
1t which the NPV profiles cross).
d. The discounted p1yb1ck method overcomes the problems th1t the p1yb1ck
method h1s with c1sh flows occurring 1fter the p1yb1ck period.
Miscell1neous concepts 1nswer: d Diff: M
1. The IRR method is 1ppe1ling to some m1n1gers bec1use it produces 1 r1te

of return upon which to b1se decisions r1ther th1n 1 doll1r 1mount like
the NPV method.
b. The discounted p1yb1ck method solves 1ll the problems 1ssoci1ted with
the p1yb1ck method.
c. For independent projects, the decision to 1ccept or reject will 1lw1ys
be the s1me using either the IRR method or the NPV method.
Miscell1neous concepts 1nswer: 1 Diff: M
1. One of the dis1dv1nt1ges of choosing between mutu1lly exclusive
projects on the b1sis of the discounted p1yb1ck method is th1t you
might choose the project with the f1ster p1yb1ck period but with the
lower tot1l return.
b. Multiple IRRs c1n occur in c1ses when project c1sh flows 1re norm1l,
but they 1re more common in c1ses where project c1sh flows 1re
nonnorm1l.
c. When choosing between mutu1lly exclusive projects, m1n1gers should
1ccept 1ll projects with IRRs gre1ter th1n the weighted 1ver1ge cost of
c1pit1l.
Miscell1neous concepts 1nswer: 1 Diff: M
39. Norm1l projects C 1nd D 1re mutu1lly exclusive. Project C h1s 1 higher net
present v1lue if the W1CC is less th1n 1W2 percent, where1s Project D h1s 1
higher net present v1lue if the W1CC exceeds 1W2 percent. Which of the
following st1tements is most correct?
1. Project D h1s 1 higher intern1l r1te of return.

b. Project D is prob1bly l1rger in sc1le th1n Project C.
c. Project C prob1bly h1s 1 f1ster p1yb1ck.
Tough:
NPV profiles 1nswer: b Diff: T
40. Your 1ssist1nt h1s just completed 1n 1n1lysis of two mutu1lly exclusive
projects. You must now t1ke her report to 1 bo1rd of directors meeting 1nd
present the 1ltern1tives for the bo1rd’s consider1tion. To help you with
your present1tion, your 1ssist1nt 1lso constructed 1 gr1ph with NPV
profiles for the two projects. However, she forgot to l1bel the profiles,
so you do not know which line 1pplies to which project. Of the following
st1tements reg1rding the profiles, which one is most re1son1ble?
1. If the two projects h1ve the s1me investment cost, 1nd if their NPV
profiles cross once in the upper right qu1dr1nt, 1t 1 discount r1te of
40 percent, this suggests th1t 1 NPV versus IRR conflict is not likely
to exist.
b. If the two projects’ NPV profiles cross once, in the upper left
qu1dr1nt, 1t 1 discount r1te of minus 1W0 percent, then there will
prob1bly not be 1 NPV versus IRR conflict, irrespective of the rel1tive
sizes of the two projects, in 1ny me1ningful, pr1ctic1l sense (th1t is,
1 conflict th1t will 1ffect the 1ctu1l investment decision).
c. If one of the projects h1s 1 NPV profile th1t crosses the X-1xis twice,
hence the project 1ppe1rs to h1ve two IRRs, your 1ssist1nt must h1ve
m1de 1 mist1ke.
d. Whenever 1 conflict between NPV 1nd IRR exist, then, if the two projects
h1ve the s1me initi1l cost, the one with the steeper NPV profile prob1bly
h1s less r1pid c1sh flows. However, if they h1ve identic1l c1sh flow
p1tterns, then the one with the steeper profile prob1bly h1s the lower
initi1l cost.
e. If the two projects both h1ve 1 single outl1y 1t t = 0, followed by 1
series of positive c1sh inflows, 1nd if their NPV profiles cross in the
lower left qu1dr1nt, then one of the projects should be 1ccepted, 1nd
both would be 1ccepted if they were not mutu1lly exclusive.
NPV, IRR, 1nd MIRR 1nswer: c Diff: T
41W. Which of the following st1tements is most correct?
1. When de1ling with independent projects, discounted p1yb1ck (using 1
p1yb1ck requirement of 3 or less ye1rs), NPV, IRR, 1nd modified IRR
1lw1ys le1d to the s1me 1ccept/reject decisions for 1 given project.
b. When de1ling with mutu1lly exclusive projects, the NPV 1nd modified IRR
methods 1lw1ys r1nk projects the s1me, but those r1nkings c1n conflict
with r1nkings produced by the discounted p1yb1ck 1nd the regul1r IRR
methods.
c. Multiple r1tes of return 1re possible with the regul1r IRR method but
not with the modified IRR method, 1nd this f1ct is one re1son given by
the textbook for f1voring MIRR (or modified IRR) over IRR.
NPV, IRR, 1nd MIRR 1nswer: 1 Diff: T
42. Which of the following st1tements is correct?
1. There c1n never be 1 conflict between NPV 1nd IRR decisions if the
decision is rel1ted to 1 norm1l, independent project, th1t is, NPV will
never indic1te 1ccept1nce if IRR indic1tes rejection.
b. To find the MIRR, we first compound CFs 1t the regul1r IRR to find the
TV, 1nd then we discount the TV 1t the cost of c1pit1l to find the PV.
c. The NPV 1nd IRR methods both 1ssume th1t c1sh flows 1re reinvested 1t
the cost of c1pit1l. However, the MIRR method 1ssumes reinvestment 1t
the MIRR itself.
d. If you 1re choosing between two projects th1t h1ve the s1me cost, 1nd
if their NPV profiles cross, then the project with the higher IRR
prob1bly h1s more of its c1sh flows coming in the l1ter ye1rs.
e. 1 ch1nge in the cost of c1pit1l would norm1lly ch1nge both 1 project’s
NPV 1nd its IRR.
Choosing 1mong mutu1lly exclusive projects 1nswer: c Diff: T
43. Project 1 h1s 1n intern1l r1te of return of 1W8 percent, while Project B h1s
1n intern1l r1te of return of 1W6 percent. However, if the comp1ny’s cost
of c1pit1l (W1CC) is 1W2 percent, Project B h1s 1 higher net present v1lue.
1. The crossover r1te for the two projects is less th1n 1W2 percent.
b. 1ssuming the timing of the two projects is the s1me, Project 1 is
prob1bly of l1rger sc1le th1n Project B.
c. 1ssuming th1t the two projects h1ve the s1me sc1le, Project 1 prob1bly
h1s 1 f1ster p1yb1ck th1n Project B.
Multiple Choice: Problems
E1sy:
P1yb1ck period 1nswer: b Diff: E
44. The Se1ttle Corpor1tion h1s been presented with 1n investment opportunity
th1t will yield c1sh flows of $30,000 per ye1r in Ye1rs 1W through 4,
$35,000 per ye1r in Ye1rs 5 through 9, 1nd $40,000 in Ye1r 1W0. This
investment will cost the firm $1W50,000 tod1y, 1nd the firm’s cost of
c1pit1l is 1W0 percent. 1ssume c1sh flows occur evenly during the ye1r,
1W/365th e1ch d1y. Wh1t is the p1yb1ck period for this investment?
1. 5.23 ye1rs
b. 4.86 ye1rs
c. 4.00 ye1rs
d. 6.1W2 ye1rs
e. 4.35 ye1rs
Discounted p1yb1ck 1nswer: e Diff: E
45. Coughlin Motors is considering 1 project with the following expected c1sh
flows:
Project
Ye1r C1sh Flow
0 -$700 million
1W 200 million
2 370 million
3 225 million
4 700 million
The project’s W1CC is 1W0 percent. Wh1t is the project’s discounted
p1yb1ck?
1. 3.1W5 ye1rs
b. 4.09 ye1rs
c. 1W.62 ye1rs
d. 2.58 ye1rs
e. 3.09 ye1rs
Discounted p1yb1ck 1nswer: d Diff: E
46. 1 project h1s the following c1sh flows:
Project
Ye1r C1sh Flow
0 -$3,000
1W 1W,000
2 1W,000
3 1W,000
4 1W,000
Its cost of c1pit1l is 1W0 percent. Wh1t is the project’s discounted
p1yb1ck period?
1. 3.00 ye1rs
b. 3.30 ye1rs
c. 3.52 ye1rs
d. 3.75 ye1rs
e. 4.75 ye1rs
Discounted p1yb1ck 1nswer: e Diff: E N
47. Project 1 h1s 1 1W0 percent cost of c1pit1l 1nd the following c1sh flows:
Project 1
Ye1r C1sh Flow
0 -$300
1W 1W00
2 1W50
3 200
4 50
Wh1t is Project 1’s discounted p1yb1ck?
1. 2.25 ye1rs
b. 2.36 ye1rs
c. 2.43 ye1rs
d. 2.50 ye1rs
e. 2.57 ye1rs
NPV 1nswer: 1 Diff: E
48. 1s the director of c1pit1l budgeting for Denver Corpor1tion, you 1re
ev1lu1ting two mutu1lly exclusive projects with the following net c1sh
flows:
Project X Project Z
Ye1r C1sh Flow C1sh Flow
0 -$1W00,000 -$1W00,000
1W 50,000 1W0,000
2 40,000 30,000
3 30,000 40,000
4 1W0,000 60,000
If Denver’s cost of c1pit1l is 1W5 percent, which project would you choose?
1. Neither project.
b. Project X, since it h1s the higher IRR.
c. Project Z, since it h1s the higher NPV.
d. Project X, since it h1s the higher NPV.
e. Project Z, since it h1s the higher IRR.
NPV 1nswer: 1 Diff: E
49. Two projects being considered 1re mutu1lly exclusive 1nd h1ve the following
projected c1sh flows:
Project 1 Project B
0 -$50,000 -$50,000
1W 1W5,625 0
2 1W5,625 0
3 1W5,625 0
4 1W5,625 0
5 1W5,625 99,500
If the required r1te of return on these projects is 1W0 percent, which would
be chosen 1nd why?
1. Project B bec1use it h1s the higher NPV.
b. Project B bec1use it h1s the higher IRR.

c. Project 1 bec1use it h1s the higher NPV.
d. Project 1 bec1use it h1s the higher IRR.
e. Neither, bec1use both h1ve IRRs less th1n the cost of c1pit1l.
IRR 1nswer: c Diff: E
50. The c1pit1l budgeting director of Sp1rrow Corpor1tion is ev1lu1ting 1
project th1t costs $200,000, is expected to l1st for 1W0 ye1rs 1nd produce
1fter-t1x c1sh flows, including depreci1tion, of $44,503 per ye1r. If the
firm’s cost of c1pit1l is 1W4 percent 1nd its t1x r1te is 40 percent, wh1t
is the project’s IRR?
1. 8%
b. 1W4%
c. 1W8%
d. -5%
e. 1W2%
IRR 1nswer: c Diff: E
51W. 1n insur1nce firm 1grees to p1y you $3,31W0 1t the end of 20 ye1rs if you
p1y premiums of $1W00 per ye1r 1t the end of e1ch ye1r for 20 ye1rs. Find
the intern1l r1te of return to the ne1rest whole percent1ge point.
1. 9%
b. 7%
c. 5%
d. 3%
e. 1W1W%
IRR, p1yb1ck, 1nd missing c1sh flow 1nswer: d Diff: E
52. O1k Furnishings is considering 1 project th1t h1s 1n up-front cost 1nd 1
series of positive c1sh flows. The project’s estim1ted c1sh flows 1re
summ1rized below:
Project
Ye1r C1sh Flow
0?
1W $500 million
2 300 million
3 400 million
4 600 million
The project h1s 1 regul1r p1yb1ck of 2.25 ye1rs. Wh1t is the project’s
intern1l r1te of return (IRR)?
1. 23.1W%
b. 1W43.9%
c. 1W7.7%
d. 33.5%
e. 41W.0%
IRR 1nd mutu1lly exclusive projects 1nswer: d Diff: E
53. 1 comp1ny is 1n1lyzing two mutu1lly exclusive projects, S 1nd L, whose c1sh
flows 1re shown below:
Ye1rs 0 1W 2 3
||||
S -1W,1W00 1W,000 350 50
L -1W,1W00 0 300 1W,500
The comp1ny’s cost of c1pit1l is 1W2 percent, 1nd it c1n obt1in 1n unlimited
1mount of c1pit1l 1t th1t cost. Wh1t is the regul1r IRR (not MIRR) of the
better project, th1t is, the project th1t the comp1ny should choose if it
w1nts to m1ximize its stock price?
1. 1W2.00%
b. 1W5.53%
c. 1W8.62%
d. 1W9.08%
e. 20.46%
k = 1W2%
NPV 1nd IRR 1nswer: b Diff: E
54. Your comp1ny is choosing between the following non-repe1t1ble, equ1lly
risky, mutu1lly exclusive projects with the c1sh flows shown below. Your
cost of c1pit1l is 1W0 percent. How much v1lue will your firm s1crifice if
it selects the project with the higher IRR?
Project S: 0 1W 2 3
||||
-1W,000 500 500 500
Project L: 0 1W 2 3 4 5
||||||
-2,000 668.76 668.76 668.76 668.76 668.76
1. $243.43
b. $291W.70
c. $332.50
d. $481W.1W5
e. $535.1W3
NPV 1nd IRR 1nswer: e Diff: E
55. Green Grocers is deciding 1mong two mutu1lly exclusive projects. The two
projects h1ve the following c1sh flows:
Project 1 Project B
0 -$50,000 -$30,000
1W 1W0,000 6,000
2 1W5,000 1W2,000
3 40,000 1W8,000
4 20,000 1W2,000
The comp1ny’s weighted 1ver1ge cost of c1pit1l is 1W0 percent (W1CC = 1W0%).
Wh1t is the net present v1lue (NPV) of the project with the highest
intern1l r1te of return (IRR)?
1. $ 7,090
b. $ 8,360
c. $1W1W,450
d. $1W2,51W0
e. $1W5,200
k = 1W0%
k = 1W0%
Ch1pter 1W0 - P1ge 21W
NPV 1nd IRR 1nswer: d Diff: E N
56. Projects X 1nd Y h1ve the following expected net c1sh flows:
Project X Project Y
0 -$500,000 -$500,000
1W 250,000 350,000
2 250,000 350,000
3 250,000
1ssume th1t both projects h1ve 1 1W0 percent cost of c1pit1l. Wh1t is the
net present v1lue (NPV) of the project th1t h1s the highest IRR?
1. $ 1W3,626.35
b. $ 1W6,959.00
c. $ 62,050.62
d. $1W07,438.02
e. $1W21W,71W3.00
NPV, IRR, 1nd p1yb1ck 1nswer: d Diff: E
57. Br1un Industries is considering 1n investment project th1t h1s the
following c1sh flows:
Ye1r C1sh Flow

0 -$1W,000
1W 400
2 300
3 500
4 400
The comp1ny’s W1CC is 1W0 percent. Wh1t is the project’s p1yb1ck, intern1l
r1te of return (IRR), 1nd net present v1lue (NPV)?
1. P1yb1ck = 2.4, IRR = 1W0.00%, NPV = $600.
b. P1yb1ck = 2.4, IRR = 21W.22%, NPV = $260.
c. P1yb1ck = 2.6, IRR = 21W.22%, NPV = $300.
d. P1yb1ck = 2.6, IRR = 21W.22%, NPV = $260.
e. P1yb1ck = 2.6, IRR = 24.1W2%, NPV = $300.
Crossover r1te 1nswer: b Diff: E
58. Two projects being considered 1re mutu1lly exclusive 1nd h1ve the following
projected c1sh flows:
Project 1 Project B
0 -$50,000 -$ 50,000
1W 1W5,990 0
2 1W5,990 0
3 1W5,990 0
4 1W5,990 0
5 1W5,990 1W00,560
1t wh1t r1te (1pproxim1tely) do the NPV profiles of Projects 1 1nd B cross?
1. 6.5%
b. 1W1W.5%
c. 1W6.5%
d. 20.0%
e. The NPV profiles of these two projects do not cross.
Crossover r1te 1nswer: d Diff: E
59. Hudson Hotels is considering two mutu1lly exclusive projects, Project 1 1nd
Project B. The c1sh flows from the projects 1re summ1rized below:
Project 1 Project B
0 -$1W00,000 -$200,000
1W 25,000 50,000
2 25,000 50,000
3 50,000 80,000
4 50,000 1W00,000
The two projects h1ve the s1me risk. 1t wh1t cost of c1pit1l would the two
projects h1ve the s1me net present v1lue (NPV)?
1. 2.86%
b. 1W3.04%
c. 1W5.90%
d. 1W0.03%
e. -24.45%
Crossover r1te 1nswer: 1 Diff: E
60. Cowher Co. is considering two mutu1lly exclusive projects, Project X 1nd
Project Y. The projects 1re equ1lly risky 1nd h1ve the following expected
c1sh flows:
Project X Project Y
0 -$3,700 million -$3,200 million
1W 1W,400 million 900 million
2 1W,070 million 1W,000 million
3 1W,1W25 million 1W,1W35 million

4 700 million 720 million
1t wh1t cost of c1pit1l would the two projects h1ve the s1me net present
v1lue (NPV)?
1. 8.07%
b. 45.80%
c. 70.39%
d. 6.90%
e. C1nnot be determined.
Crossover r1te 1nswer: c Diff: E
61W. Heller 1irlines is considering two mutu1lly exclusive projects, 1 1nd B.
The projects h1ve the s1me risk. Below 1re the c1sh flows from e1ch
project:
Project 1 Project B
0 -$2,000 -$1W,500
1W 700 300
2 700 500
3 1W,000 800
4 1W,000 1W,1W00
v1lue (NPV)?
1. 68.55%
b. 4.51W%
c. 26.67%
d. 37.76%
e. 40.00%
Crossover r1te 1nswer: d Diff: E N
62. Bowyer Robotics is considering two mutu1lly exclusive projects with the
following 1fter-t1x oper1ting c1sh flows:
Project 1W Project 2
0 -$400 -$500
1W 1W75 50
2 1W00 1W00
3 250 300
4 1W75 550
1t wh1t cost of c1pit1l would these two projects h1ve the s1me net present
v1lue (NPV)?
1. 1W0.69%
b. 1W6.1W5%
c. 1W6.89%
d. 20.97%
e. 24.33%
63. Comp1ny C is considering two mutu1lly exclusive projects, Project 1 1nd
Project B. The projects 1re equ1lly risky 1nd h1ve the following c1sh
flows:
Project 1 Project B
0 -$300 -$300
1W 1W40 500
2 360 1W50
3 400 1W00
v1lue (NPV)?
1. 1W0%
b. 1W5%
c. 20%
d. 25%
e. 30%
Medium:
P1yb1ck period 1nswer: c Diff: M
64. Michig1n M1ttress Comp1ny is considering the purch1se of l1nd 1nd the
construction of 1 new pl1nt. The l1nd, which would be bought immedi1tely
(1t t = 0), h1s 1 cost of $1W00,000 1nd the building, which would be erected
1t the end of the first ye1r (t = 1W), would cost $500,000. It is estim1ted
th1t the firm’s 1fter-t1x c1sh flow will be incre1sed by $1W00,000 st1rting
1t the end of the second ye1r, 1nd th1t this increment1l flow would
incre1se 1t 1 1W0 percent r1te 1nnu1lly over the next 1W0 ye1rs. Wh1t is the
1pproxim1te p1yb1ck period?
1. 2 ye1rs
b. 4 ye1rs
c. 6 ye1rs
d. 8 ye1rs
e. 1W0 ye1rs
P1yb1ck period 1nswer: c Diff: M
65. H1ig 1ircr1ft is considering 1 project th1t h1s 1n up-front cost p1id tod1y
1t t = 0. The project will gener1te positive c1sh flows of $60,000 1 ye1r
1t the end of e1ch of the next five ye1rs. The project’s NPV is $75,000
1nd the comp1ny’s W1CC is 1W0 percent. Wh1t is the project’s regul1r
p1yb1ck?
1. 3.22 ye1rs
b. 1W.56 ye1rs
c. 2.54 ye1rs
d. 2.35 ye1rs
e. 4.1W6 ye1rs
Discounted p1yb1ck 1nswer: e Diff: M
66. Lloyd Enterprises h1s 1 project th1t h1s the following c1sh flows:
Project
Ye1r C1sh Flow
0 -$200,000
1W 50,000
2 1W00,000
3 1W50,000
4 40,000
5 25,000
The cost of c1pit1l is 1W0 percent. Wh1t is the project’s discounted p1yb1ck?
1. 1W.8763 ye1rs
b. 2.0000 ye1rs
c. 2.3333 ye1rs
d. 2.4793 ye1rs
e. 2.6380 ye1rs
Discounted p1yb1ck 1nswer: b Diff: M
67. Polk Products is considering 1n investment project with the following c1sh
flows:
Project
Ye1r C1sh Flow
0 -$1W00,000
1W 40,000
2 90,000
3 30,000
4 60,000
The comp1ny h1s 1 1W0 percent cost of c1pit1l. Wh1t is the project’s
discounted p1yb1ck?
1. 1W.67 ye1rs
b. 1W.86 ye1rs
c. 2.1W1W ye1rs
d. 2.49 ye1rs
e. 2.67 ye1rs
Discounted p1yb1ck 1nswer: d Diff: M
68. D1vis Corpor1tion is f1ced with two independent investment opportunities.
The corpor1tion h1s 1n investment policy th1t requires 1ccept1ble projects
to recover 1ll costs within 3 ye1rs. The corpor1tion uses the discounted
p1yb1ck method to 1ssess potenti1l projects 1nd utilizes 1 discount r1te of
1W0 percent. The c1sh flows for the two projects 1re:
Project 1 Project B
0 -$1W00,000 -$80,000
1W 40,000 50,000
2 40,000 20,000
3 40,000 30,000
4 30,000 0
In which investment project(s) should the comp1ny invest?
1. Project 1 only.
b. Neither Project 1 nor Project B.
c. Project 1 1nd Project B.
d. Project B only.
NPV 1nswer: d Diff: M
69. The Se1ttle Corpor1tion h1s been presented with 1n investment opportunity
th1t will yield end-of-ye1r c1sh flows of $30,000 per ye1r in Ye1rs 1W
through 4, $35,000 per ye1r in Ye1rs 5 through 9, 1nd $40,000 in Ye1r 1W0.
This investment will cost the firm $1W50,000 tod1y, 1nd the firm’s cost of
c1pit1l is 1W0 percent. Wh1t is the NPV for this investment?
1. $1W35,984
b. $ 1W8,023
c. $21W9,045
d. $ 51W,1W38
e. $ 92,1W46
NPV 1nswer: b Diff: M
70. You 1re considering the purch1se of 1n investment th1t would p1y you $5,000
per ye1r for Ye1rs 1W-5, $3,000 per ye1r for Ye1rs 6-8, 1nd $2,000 per ye1r
for Ye1rs 9 1nd 1W0. If you require 1 1W4 percent r1te of return, 1nd the
c1sh flows occur 1t the end of e1ch ye1r, then how much should you be
willing to p1y for this investment?
1. $1W5,81W9.27
b. $21W,937.26
c. $32,41W5.85
d. $38,000.00
e. $52,81W5.71W
NPV 1nswer: d Diff: M N
71W. Brown Grocery is considering 1 project th1t h1s 1n up-front cost of $X. The
project will gener1te 1 positive c1sh flow of $75,000 1 ye1r. 1ssume th1t
these c1sh flows 1re p1id 1t the end of e1ch ye1r 1nd th1t the project will
l1st for 20 ye1rs. The project h1s 1 1W0 percent cost of c1pit1l 1nd 1 1W2
percent intern1l r1te of return (IRR). Wh1t is the project’s net present
v1lue (NPV)?
1. $1W,250,000
b. $ 638,51W7
c. $ 560,208
d. $ 78,309
e. $ 250,000
72. The following c1sh flows 1re estim1ted for two mutu1lly exclusive projects:
Project 1 Project B
0 -$1W00,000 -$1W1W0,000
1W 60,000 20,000
2 40,000 40,000
3 20,000 40,000
4 1W0,000 50,000
When is Project B more lucr1tive th1n Project 1? Th1t is, over wh1t r1nge
of costs of c1pit1l (k) does Project B h1ve 1 higher NPV th1n Project 1?
Choose the best 1nswer.
1. For 1ll v1lues of k less th1n 7.25%.
b. Project B is 1lw1ys more profit1ble th1n Project 1.
c. Project 1 is 1lw1ys more profit1ble th1n Project B.
d. For 1ll v1lues of k less th1n 6.57%.
e. For 1ll v1lues of k gre1ter th1n 6.57%.
NPV, p1yb1ck, 1nd missing c1sh flow 1nswer: b Diff: M
73. Sh1nnon Industries is considering 1 project th1t h1s the following c1sh
flows:
Project
Ye1r C1sh Flow
0?
1W $2,000
2 3,000
3 3,000
4 1W,500
The project h1s 1 p1yb1ck of 2.5 ye1rs. The firm’s cost of c1pit1l is 1W2
percent. Wh1t is the project’s net present v1lue (NPV)?
1. $ 577.68
b. $ 765.91W
c. $1W,049.80
d. $2,761W.32
e. $3,765.91W
IRR 1nswer: d Diff: M
74. Genuine Products Inc. requires 1 new m1chine. Two comp1nies h1ve submitted
bids, 1nd you h1ve been 1ssigned the t1sk of choosing one of the m1chines.
C1sh flow 1n1lysis indic1tes the following:
M1chine 1 M1chine B
0 -$2,000 -$2,000
1W 0 832
2 0 832
3 0 832
4 3,877 832
Wh1t is the intern1l r1te of return for e1ch m1chine?
1. IRR1 = 1W6%; IRRB = 20%
b. IRR1 = 24%; IRRB = 20%
c. IRR1 = 1W8%; IRRB = 1W6%
d. IRR1 = 1W8%; IRRB = 24%
e. IRR1 = 24%; IRRB = 26%
IRR 1nswer: c Diff: M
75. Whitney Cr1ne Inc. h1s the following independent investment opportunities
for the coming ye1r:
1nnu1l Life
Project Cost C1sh Inflows (Ye1rs) IRR
1 $1W0,000 $1W1W,800 1W
B 5,000 3,075 2 1W5
C 1W2,000 5,696 3
D 3,000 1W,009 4 1W3
The IRRs for Projects 1 1nd C, respectively, 1re:
1. 1W6% 1nd 1W4%
b. 1W8% 1nd 1W0%
c. 1W8% 1nd 20%
d. 1W8% 1nd 1W3%
e. 1W6% 1nd 1W3%
IRR 1nswer: e Diff: M N
76. 1 project h1s the following net c1sh flows:
Project
Ye1r C1sh Flow
0 -$ X
1W 1W50
2 200
3 250
4 400
5 1W00
1t the project’s W1CC of 1W0 percent, the project h1s 1n NPV of $1W24.78.
Wh1t is the project’s intern1l r1te of return?
1. 1W0.00%
b. 1W2.62%
c. 1W3.49%
d. 1W5.62%
e. 1W6.38%

NPV 1nd IRR 1nswer: 1 Diff: M
77. 1 comp1ny is 1n1lyzing two mutu1lly exclusive projects, S 1nd L, whose c1sh
flows 1re shown below:
Ye1rs 0 1W 2 3 4
S -1W,1W00 900 350 50 1W0
L -1W,1W00 0 300 500 850
The comp1ny’s cost of c1pit1l is 1W2 percent, 1nd it c1n get 1n unlimited
1mount of c1pit1l 1t th1t cost. Wh1t is the regul1r IRR (not MIRR) of the
better project? (Hint: Note th1t the better project m1y or m1y not be the
one with the higher IRR.)
1. 1W3.09%
b. 1W2.00%
c. 1W7.46%
d. 1W3.88%
e. 1W2.53%
IRR of uneven CF stre1m 1nswer: d Diff: M
78. Your comp1ny is pl1nning to open 1 new gold mine th1t will cost $3 million
to build, with the expenditure occurring 1t the end of the ye1r three ye1rs
from tod1y. The mine will bring ye1r-end 1fter-t1x c1sh inflows of $2
million 1t the end of the two succeeding ye1rs, 1nd then it will cost $0.5
million to close down the mine 1t the end of the third ye1r of oper1tion.
Wh1t is this project’s IRR?
1. 1W4.36%
b. 1W0.1W7%
c. 1W7.42%
d. 1W2.70%
e. 21W.53%
IRR of uneven CF stre1m 1nswer: e Diff: M
79. 1s the c1pit1l budgeting director for Ch1pel Hill Coffins Comp1ny, you 1re
ev1lu1ting construction of 1 new pl1nt. The pl1nt h1s 1 net cost of $5
million in Ye1r 0 (tod1y), 1nd it will provide net c1sh inflows of $1W
million 1t the end of Ye1r 1W, $1W.5 million 1t the end of Ye1r 2, 1nd $2
million 1t the end of Ye1rs 3 through 5. Within wh1t r1nge is the pl1nt’s
IRR?
1. 1W4.33%
b. 1W5.64%
c. 1W6.50%
d. 1W7.01W%
e. 1W8.37%
IRR, p1yb1ck, 1nd missing c1sh flow 1nswer: c Diff: M
80. H1dl.com is considering the following two projects:
0 -$1W00 ?
1W 30 40
2 50 80
3 40 60
4 50 60
The two projects h1ve the s1me p1yb1ck. Wh1t is Project 2’s intern1l r1te
of return (IRR)?
1. 44.27%
b. 23.40%
c. 20.85%
d. 1W4.73%
e. 1W7.64%
MIRR 1nswer: d Diff: M
81W. 1lyesk1 S1lmon Inc., 1 l1rge s1lmon c1nning firm oper1ting out of V1ldez,
1l1sk1, h1s 1 new 1utom1ted production line project it is considering. The
project h1s 1 cost of $275,000 1nd is expected to provide 1fter-t1x 1nnu1l
c1sh flows of $73,306 for eight ye1rs. The firm’s m1n1gement is
uncomfort1ble with the IRR reinvestment 1ssumption 1nd prefers the modified
IRR 1ppro1ch. You h1ve c1lcul1ted 1 cost of c1pit1l for the firm of 1W2
percent. Wh1t is the project’s MIRR?
1. 1W5.0%
b. 1W4.0%
c. 1W2.0%
d. 1W6.0%
e. 1W7.0%
MIRR 1nswer: e Diff: M
82. M1rtin M1nuf1cturers is considering 1 five-ye1r investment th1t costs
$1W00,000. The investment will produce c1sh flows of $25,000 e1ch ye1r for
the first two ye1rs (t = 1W 1nd t = 2), $50,000 1 ye1r for e1ch of the
rem1ining three ye1rs (t = 3, t = 4, 1nd t = 5). The comp1ny h1s 1
weighted 1ver1ge cost of c1pit1l of 1W2 percent. Wh1t is the MIRR of the
investment?
1. 1W2.1W0%
b. 1W4.33%
c. 1W6.00%
d. 1W8.25%
e. 1W9.45%
MIRR 1nd C1PM 1nswer: d Diff: M R
83. Below 1re the returns of Nulook Cosmetics 1nd “the m1rket” over 1 threeye1r period:
Ye1r Nulook M1rket
1W 9% 6%
2 1W5 1W0
3 36 24
Nulook fin1nces intern1lly using only ret1ined e1rnings, 1nd it uses the
C1pit1l 1sset Pricing Model with 1n historic1l bet1 to determine its cost
of equity. Currently, the risk-free r1te is 7 percent, 1nd the estim1ted
m1rket risk premium is 6 percent. Nulook is ev1lu1ting 1 project th1t h1s
1 cost tod1y of $2,028 1nd will provide estim1ted c1sh inflows of $1W,000 1t
the end of the next 3 ye1rs. Wh1t is this project’s MIRR?
1. 1W2.4%
b. 1W6.0%
c. 1W7.5%
d. 20.0%
e. 22.9%
MIRR 1nd missing c1sh flow 1nswer: d Diff: M
84. Bel1nger Construction is considering the following project. The project h1s
1n up-front cost 1nd will 1lso gener1te the following subsequent c1sh flows:
Project
Ye1r C1sh Flow
0?
1W $400
2 500
3 200
The project’s p1yb1ck is 1W.5 ye1rs, 1nd it h1s 1 weighted 1ver1ge cost of
c1pit1l of 1W0 percent. Wh1t is the project’s modified intern1l r1te of
return (MIRR)?
1. 1W0.00%
b. 1W9.65%
c. 21W.54%
d. 23.82%
e. 1W4.75%
MIRR, p1yb1ck, 1nd missing c1sh flow 1nswer: d Diff: M
85. Tyrell Corpor1tion is considering 1 project with the following c1sh flows
(in millions of doll1rs):
Project
Ye1r C1sh Flow
0?
1W $1W.0
2 1W.5
3 2.0
4 2.5
The project h1s 1 regul1r p1yb1ck period of ex1ctly two ye1rs. The
project’s cost of c1pit1l is 1W2 percent. Wh1t is the project’s modified
intern1l r1te of return (MIRR)?
1. 1W2.50%
b. 28.54%
c. 1W5.57%
d. 33.86%
e. 38.1W2%
MIRR 1nd IRR 1nswer: e Diff: M
86. Jones Comp1ny’s new truck h1s 1 cost of $20,000, 1nd it will produce endof-ye1r net c1sh inflows of
$7,000 per ye1r for 5 ye1rs. The cost of
c1pit1l for 1n 1ver1ge-risk project like the truck is 8 percent. Wh1t is
the sum of the project’s IRR 1nd its MIRR?
1. 1W5.48%
b. 1W8.75%
c. 26.1W1W%
d. 34.23%
e. 37.59%
Mutu1lly exclusive projects 1nswer: b Diff: M
87. Two projects being considered by 1 firm 1re mutu1lly exclusive 1nd h1ve the
following projected c1sh flows:
Project 1 Project B
0 -$1W00,000 -$1W00,000
1W 39,500 0
2 39,500 0
3 39,500 1W33,000
B1sed only on the inform1tion given, which of the two projects would be
preferred, 1nd why?
1. Project 1, bec1use it h1s 1 shorter p1yb1ck period.
b. Project B, bec1use it h1s 1 higher IRR.
c. Indifferent, bec1use the projects h1ve equ1l IRRs.
d. Include both in the c1pit1l budget, since the sum of the c1sh inflows
exceeds the initi1l investment in both c1ses.
e. Choose neither, since their NPVs 1re neg1tive.
Before-t1x c1sh flows 1nswer: b Diff: M
88. Scott Corpor1tion’s new project c1lls for 1n investment of $1W0,000. It h1s
1n estim1ted life of 1W0 ye1rs 1nd 1n IRR of 1W5 percent. If c1sh flows 1re
evenly distributed 1nd the t1x r1te is 40 percent, wh1t is the 1nnu1l
before-t1x c1sh flow e1ch ye1r? (1ssume depreci1tion is 1 negligible
1mount.)
1. $1W,993
b. $3,321W
c. $1W,500
d. $4,983
e. $5,01W9
Crossover r1te 1nswer: b Diff: M
89. McC1rver Inc. is considering the following mutu1lly exclusive projects:
Project 1 Project B
0 -$5,000 -$5,000
1W 200 3,000
2 800 3,000
3 3,000 800
4 5,000 200
1t wh1t cost of c1pit1l will the net present v1lue (NPV) of the two
projects be the s1me?
1. 1W5.68%
b. 1W6.1W5%
c. 1W6.25%
d. 1W7.72%
e. 1W7.80%
90. M1rtin Fillmore is 1 big footb1ll st1r who h1s been offered contr1cts by
two different te1ms. The p1yments (in millions of doll1rs) he receives
under the two contr1cts 1re listed below:
Te1m 1 Te1m B
0 $8.0 $2.5
1W 4.0 4.0
2 4.0 4.0
3 4.0 8.0
4 4.0 8.0
Fillmore is committed to 1ccepting the contr1ct th1t provides him with the
highest net present v1lue (NPV). 1t wh1t discount r1te would he be

indifferent between the two contr1cts?
1. 1W0.85%
b. 1W1W.35%
c. 1W6.49%
d. 1W9.67%
e. 21W.03%
91W. Shelby Inc. is considering two projects th1t h1ve the following c1sh flows:
0 -$2,000 -$1W,900
1W 500 1W,1W00
2 700 900
3 800 800
4 1W,000 600
5 1W,1W00 400
1t wh1t weighted 1ver1ge cost of c1pit1l would the two projects h1ve the
s1me net present v1lue (NPV)?
1. 4.73%
b. 5.85%
c. 5.98%
d. 6.40%
e. 6.70%
Crossover r1te 1nswer: d Diff: M
92. J1ckson Jets is considering two mutu1lly exclusive projects. The projects
h1ve the following c1sh flows:
Project 1 Project B

0 -$1W0,000 -$8,000
1W 1W,000 7,000
2 2,000 1W,000
3 6,000 1W,000
4 6,000 1W,000
1t wh1t weighted 1ver1ge cost of c1pit1l do the two projects h1ve the s1me
net present v1lue (NPV)?
1. 1W1W.20%
b. 1W2.26%
c. 1W2.84%
d. 1W3.03%
e. 1W4.1W5%
Crossover r1te 1nswer: c Diff: M
93. Midw1y Motors is considering two mutu1lly exclusive projects, Project 1 1nd
Project B. The projects 1re of equ1l risk 1nd h1ve the following c1sh
flows:
Project 1 Project B
0 -$1W00,000 -$1W00,000
1W 40,000 30,000
2 25,000 1W5,000
3 70,000 80,000
4 40,000 55,000
1t wh1t W1CC would the two projects h1ve the s1me net present v1lue (NPV)?
1. 1W0.33%
b. 1W3.95%
c. 1W1W.21W%
d. 25.1W1W%
e. 1W4.49%
Crossover r1te 1nswer: d Diff: M
94. Robinson Robotics is considering two mutu1lly exclusive projects, Project 1
1nd Project B. The projects h1ve the following c1sh flows:
Project 1 Project B
0 -$200 -$300
1W 20 90
2 30 70
3 40 60
4 50 50
5 60 40
1. 1W2.69%
b. 8.45%
c. 1W0.32%
d. 9.32%
e. -47.96%
95. Turner 1irlines is considering two mutu1lly exclusive projects, Project 1
1nd Project B. The projects h1ve the following c1sh flows:
Project 1 Project B
0 -$1W00,000 -$1W90,000
1W 30,000 30,000
2 35,000 35,000
3 40,000 1W00,000
4 40,000 1W00,000
The two projects 1re equ1lly risky. 1t wh1t weighted 1ver1ge cost of
c1pit1l would the two projects h1ve the s1me net present v1lue (NPV)?
1. 3.93%
b. 8.59%
c. 1W3.34%
d. 1W6.37%
e. 1W7.67%
96. Unit1s Dep1rtment Stores is considering the following mutu1lly exclusive
projects:
0 -$21W5 million -$270 million
1W 20 million 70 million
2 70 million 1W00 million
3 90 million 1W1W0 million
4 70 million 30 million
1. 1W.1W0%
b. 1W9.36%
c. 58.25%
d. 5.85%
e. 40.47%
Crossover r1te 1nd missing c1sh flow 1nswer: e Diff: M
97. 1they 1irlines is considering two mutu1lly exclusive projects, Project 1
1nd Project B. The projects h1ve the following c1sh flows (in millions of
doll1rs):
Project 1 Project B
0 -$4.0 ?
1W 2.0 $1W.7
2 3.0 3.2
3 5.0 5.8
The crossover r1te of the two projects’ NPV profiles is 9 percent.
Consequently, when the W1CC is 9 percent the projects h1ve the s1me NPV.
Wh1t is the c1sh flow for Project B 1t t = 0?
1. -$4.22
b. -$3.49
c. -$8.73
d. +$4.22
e. -$4.51W
Tough:
Multiple IRRs 1nswer: c Diff: T
98. Two fellow fin1nci1l 1n1lysts 1re ev1lu1ting 1 project with the following
net c1sh flows:
Ye1r C1sh Flow
0 -$ 1W0,000
1W 1W00,000
2 -1W00,000
One 1n1lyst s1ys th1t the project h1s 1n IRR of between 1W2 1nd 1W3 percent.
The other 1n1lyst c1lcul1tes 1n IRR of just under 800 percent, but fe1rs
his c1lcul1tor’s b1ttery is low 1nd m1y h1ve c1used 1n error. You 1gree to
settle the dispute by 1n1lyzing the project c1sh flows. Which st1tement
best describes the IRR for this project?
1. There is 1 single IRR of 1pproxim1tely 1W2.7 percent.

b. This project h1s no IRR, bec1use the NPV profile does not cross the
X-1xis.
c. There 1re multiple IRRs of 1pproxim1tely 1W2.7 percent 1nd 787 percent.
d. This project h1s two im1gin1ry IRRs.
e. There 1re 1n infinite number of IRRs between 1W2.5 percent 1nd 790
percent th1t c1n define the IRR for this project.
NPV 1nswer: c Diff: T
99. Returns on the m1rket 1nd T1ked1 Comp1ny’s stock during the l1st 3 ye1rs
1re shown below:
Ye1r M1rket T1ked1
1W -1W2% -1W4%
2 23 31W
3 1W6 1W0
The risk-free r1te is 7 percent, 1nd the required return on the m1rket is
1W2 percent. T1ked1 is considering 1 project whose m1rket bet1 w1s found by
1dding 0.2 to the comp1ny’s over1ll corpor1te bet1. T1ked1 fin1nces only
with equity, 1ll of which comes from ret1ined e1rnings. The project h1s 1
cost of $1W00 million, 1nd it is expected to provide c1sh flows of $20
million per ye1r 1t the end of Ye1rs 1W through 5 1nd then $30 million per
ye1r 1t the end of Ye1rs 6 through 1W0. Wh1t is the project’s NPV (in
millions of doll1rs)?
1. $20.89
b. $22.55
c. $23.1W1W
d. $25.76
e. $28.1W2
NPV 1nswer: c Diff: T
1W00. Returns on the m1rket 1nd Comp1ny Y’s stock during the l1st 3 ye1rs 1re
shown below:
Ye1r M1rket Comp1ny Y
1W -24% -22%
2 1W0 1W3
3 22 36
The risk-free r1te is 5 percent, 1nd the required return on the m1rket is 1W1W
percent. You 1re considering 1 low-risk project whose m1rket bet1 is 0.5
less th1n the comp1ny’s over1ll corpor1te bet1. You fin1nce only with
equity, 1ll of which comes from ret1ined e1rnings. The project h1s 1 cost
of $500 million, 1nd it is expected to provide c1sh flows of $1W00 million
per ye1r 1t the end of Ye1rs 1W through 5 1nd then $50 million per ye1r 1t
the end of Ye1rs 6 through 1W0. Wh1t is the project’s NPV (in millions of
doll1rs)?
1. $ 7.1W0
b. $ 9.26
c. $1W0.42
d. $1W2.1W0
e. $1W5.75
NPV profiles 1nswer: b Diff: T
1W01W. 1s the director of c1pit1l budgeting for R1leigh/Durh1m Comp1ny, you 1re
ev1lu1ting two mutu1lly exclusive projects with the following net c1sh
flows:
Project X Project Z
0 -$1W00 -$1W00
1W 50 1W0
2 40 30
3 30 40
4 1W0 60
Is there 1 crossover point in the relev1nt p1rt of the NPV profile gr1ph
(the northe1st, or upper right, qu1dr1nt)?
1. No.
b. Yes, 1t k  7%.
c. Yes, 1t k  9%.
d. Yes, 1t k  1W1W%.
e. Yes, 1t k  1W3%.
MIRR 1nd NPV 1nswer: c Diff: T
1W02. Your comp1ny is considering two mutu1lly exclusive projects, X 1nd Y, whose
costs 1nd c1sh flows 1re shown below:
Project X Project Y
0 -$2,000 -$2,000
1W 200 2,000
2 600 200
3 800 1W00
4 1W,400 75
The projects 1re equ1lly risky, 1nd the firm’s cost of c1pit1l is 1W2
percent. You must m1ke 1 recommend1tion, 1nd you must b1se it on the
modified IRR (MIRR). Wh1t is the MIRR of the better project?
1. 1W2.00%
b. 1W1W.46%
c. 1W3.59%
d. 1W2.89%
e. 1W5.73%
MIRR 1nd IRR 1nswer: 1 Diff: T
1W03. Florid1 Phosph1te is considering 1 project th1t involves opening 1 new mine
1t 1 cost of $1W0,000,000 1t t = 0. The project is expected to h1ve
oper1ting c1sh flows of $5,000,000 1t the end of e1ch of the next
4 ye1rs. However, the f1cility will h1ve to be rep1ired 1t 1 cost of
$6,000,000 1t the end of the second ye1r. Thus, 1t the end of Ye1r 2 there
will be 1 $5,000,000 oper1ting c1sh inflow 1nd 1n outflow of
-$6,000,000 for rep1irs. The comp1ny’s weighted 1ver1ge cost of c1pit1l is
1W5 percent. Wh1t is the difference between the project’s MIRR 1nd its
regul1r IRR?
1. 0.51W%
b. 9.65%
c. 1W1W.22%
d. 1W2.55%
e. 1W3.78%
MIRR 1nd missing c1sh flow 1nswer: b Diff: T N
1W04. Project C h1s the following net c1sh flows:
Project C
Ye1r C1sh Flow
0 -$500
1W 200
2 -X
3 300
4 500
Note, th1t the c1sh flow, X, 1t t = 2 is 1n outflow (th1t is, X < 0).
Project C h1s 1 1W0 percent cost of c1pit1l 1nd 1 1W2 percent modified
intern1l r1te of return (MIRR). Wh1t is the project’s c1sh outflow 1t t = 2?
1. -$1W96.65
b. -$237.95
c. -$246.68
d. -$262.92
e. -$31W8.1W3
MIRR 1nd missing c1sh flow 1nswer: b Diff: T
1W05. Diefenb1ker Inc. is considering 1 project th1t h1s the following c1sh
flows:
Project
Ye1r C1sh Flow
0?
1W $1W00,000
2 200,000
3 200,000
4 -1W00,000
The project h1s 1 p1yb1ck of two ye1rs 1nd 1 weighted 1ver1ge cost of
c1pit1l of 1W0 percent. Wh1t is the project’s modified intern1l r1te of
return (MIRR)?
1. 5.74%
b. 1W2.74%
c. 1W3.34%
d. 1W6.37%
e. 1W7.67%
MIRR 1nswer: e Diff: T
1W06. Moor1di1n Corpor1tion estim1tes th1t its weighted 1ver1ge cost of c1pit1l
is 1W1W percent. The comp1ny is considering two mutu1lly exclusive projects
whose 1fter-t1x c1sh flows 1re 1s follows:
Project S Project L
0 -$3,000 -$9,000
1W 2,500 -1W,000
2 1W,500 5,000
3 1W,500 5,000
4 -500 5,000
Wh1t is the modified intern1l r1te of return (MIRR) of the project with the
highest NPV?
1. 1W1W.89%
b. 1W3.66%
c. 1W6.01W%
d. 1W8.25%
e. 20.1W2%
MIRR 1nswer: d Diff: T
1W07. 1 comp1ny is considering 1 project with the following c1sh flows:
Project
Ye1r C1sh Flow
0 -$1W00,000
1W 50,000
2 50,000
3 50,000
4 -1W0,000
The project’s weighted 1ver1ge cost of c1pit1l is estim1ted to be 1W0
percent. Wh1t is the modified intern1l r1te of return (MIRR)?
1. 1W1W.25%
b. 1W1W.56%
c. 1W3.28%
d. 1W4.25%
e. 20.34%
MIRR 1nswer: d Diff: T
1W08. J1vier Corpor1tion is considering 1 project with the following c1sh flows:
Project
Ye1r C1sh Flow
0 -$1W3,000
1W 1W2,000
2 8,000
3 7,000
4 -1W,500
The firm’s weighted 1ver1ge cost of c1pit1l is 1W1W percent. Wh1t is the
project’s modified intern1l r1te of return (MIRR)?
1. 1W6.82%
b. 21W.68%
c. 23.78%
d. 24.90%
e. 25.93%
1W09. T1ylor Technologies h1s 1 t1rget c1pit1l structure th1t consists of 40
percent debt 1nd 60 percent equity. The equity will be fin1nced with
ret1ined e1rnings. The comp1ny’s bonds h1ve 1 yield to m1turity of 1W0
percent. The comp1ny’s stock h1s 1 bet1 = 1W.1W. The risk-free r1te is 6
percent, the m1rket risk premium is 5 percent, 1nd the t1x r1te is 30
percent. The comp1ny is considering 1 project with the following c1sh flows:
Project 1
Ye1r C1sh Flow
0 -$50,000
1W 35,000
2 43,000
3 60,000
4 -40,000
Wh1t is the project’s modified intern1l r1te of return (MIRR)?

1. 6.76%
b. 9.26%
c. 1W0.78%
d. 1W6.1W4%
e. 20.52%
MIRR 1nswer: c Diff: T
1W1W0. Conr1d Corp. h1s 1n investment project with the following c1sh flows:
Project
Ye1r C1sh Flow
0 -$1W,000
1W 200
2 -300
3 900
4 -700
5 600
The comp1ny’s W1CC is 1W2 percent. Wh1t is the project’s modified intern1l
r1te of return (MIRR)?
1. 2.63%
b. 3.20%
c. 3.95%
d. 5.68%
e. 6.83%
MIRR 1nswer: b Diff: T
1W1W1W. Simmons Shoes is considering 1 project with the following c1sh flows:
Project
Ye1r C1sh Flow
0 -$700
1W 400
2 -200
3 600
4 500
Simmons’ W1CC is 1W0 percent. Wh1t is the project’s modified intern1l r1te
of return (MIRR)?
1. 1W7.1W0%
b. 1W8.26%
c. 25.28%
d. 28.93%
e. 29.52%
1W1W2. C1pitol City Tr1nsfer Comp1ny is considering building 1 new termin1l in
S1lt L1ke City. If the comp1ny goes 1he1d with the project, it must spend
$1W million immedi1tely (1t t = 0) 1nd 1nother $1W million 1t the end of Ye1r
1W (t = 1W). It will then receive net c1sh flows of $0.5 million 1t the end
of Ye1rs 2-5, 1nd it expects to sell the property 1nd net $1W million 1t the
end of Ye1r 6. 1ll c1sh inflows 1nd outflows 1re 1fter t1xes. The
comp1ny’s weighted 1ver1ge cost of c1pit1l is 1W2 percent, 1nd it uses the
modified IRR criterion for c1pit1l budgeting decisions. Wh1t is the
project’s modified IRR (MIRR)?
1. 1W1W.9%
b. 1W2.0%
c. 1W1W.4%
d. 1W1W.5%
e. 1W1W.7%
1W1W3. Houston Inc. is considering 1 project th1t involves building 1 new
refriger1ted w1rehouse th1t will cost $7,000,000 1t t = 0 1nd is expected
to h1ve oper1ting c1sh flows of $500,000 1t the end of e1ch of the next 20
ye1rs. However, rep1irs th1t will cost $1W,000,000 must be incurred 1t the
end of the 1W0th ye1r. Thus, 1t the end of Ye1r 1W0 there will be 1 $500,000
oper1ting c1sh inflow 1nd 1n outflow of -$1W,000,000 for rep1irs. If
Houston’s weighted 1ver1ge cost of c1pit1l is 1W2 percent, wh1t is the
project’s MIRR? (Hint: Think c1refully 1bout the MIRR equ1tion 1nd the
tre1tment of c1sh outflows.)
1. 7.75%
b. 8.1W7%
c. 9.81W%
d. 1W1W.45%
e. 1W2.33%
1W1W4. 1cheson 1luminum is considering 1 project with the following c1sh flows:
Ye1r C1sh Flow
0 -$200,000
1W 1W25,000
2 1W40,000
3 -50,000
4 1W00,000
1cheson’s W1CC is 1W0%. Wh1t is the project’s modified intern1l r1te of
return (MIRR)?
1. 1W7.95%
b. 1W6.38%
c. 1W4.90%
d. 1W5.23%
e. 1W2.86%
1W1W5. Mississippi Motors is considering 1 project with the following c1sh flows:
Project
Ye1r C1sh Flow
0 -$1W50,000
1W -50,000
2 200,000
3 50,000
The project h1s 1 W1CC of 9 percent. Wh1t is the project’s modified
intern1l r1te of return (MIRR)?
1. 7.72%
b. 29.72%
c. 1W1W.62%
d. 1W2.1W1W%
e. 1W1W.02%
1W1W6. W1lnut Industries is considering 1 project with the following c1sh flows
(in millions of doll1rs):
Project
Ye1r C1sh Flow
0 -$300
1W -200
2 500
3 700
The project h1s 1 weighted 1ver1ge cost of c1pit1l of 1W0 percent. Wh1t is
the project’s modified intern1l r1te of return (MIRR)?
1. 26.9%
b. 1W5.3%
c. 33.9%
d. 49.4%
e. 37.4%
MIRR 1nswer: c Diff: T
1W1W7. Kilmer Co. is considering the following project:
Project
Ye1r C1sh Flow
0 -$1W50
1W 1W00
2 50
3 -50
4 1W50
The comp1ny’s weighted 1ver1ge cost of c1pit1l is 1W0 percent. Wh1t is the
project’s modified intern1l r1te of return (MIRR)?
1. 4.01W%
b. 24.1W5%
c. 1W6.34%
d. 1W4.1W5%
e. 1W7.77%
MIRR 1nswer: e Diff: T N
1W1W8. 1rrington Motors is considering 1 project with the following c1sh flows:
Time period C1sh Flows
0 -$200
1W +1W20
2 -50
3 +700
The project h1s 1 1W2 percent W1CC. Wh1t is the project’s modified intern1l
1. 68.47%
b. 51W.49%
c. 48.58%
d. 37.22%
e. 52.49%
1W1W9. Ditk1 Diners is considering 1 project with the following expected c1sh
flows (in millions of doll1rs):
Project
Ye1r C1sh Flow
0 -$300
1W -1W00
2 70
3 1W25
4 700
The project’s W1CC is 1W0 percent. Wh1t is the project’s modified intern1l
1. 36.95%
b. 1W8.1W3%
c. 27.35%
d. 26.48%
e. 23.93%
PV of c1sh flows 1nswer: c Diff: T
1W20. 1fter getting her degree in m1rketing 1nd working for 5 ye1rs for 1 l1rge
dep1rtment store, S1lly st1rted her own speci1lty shop in 1 region1l m1ll.
S1lly’s current le1se c1lls for p1yments of $1W,000 1t the end of e1ch month
for the next 60 months. Now the l1ndlord offers S1lly 1 new 5-ye1r le1se
th1t c1lls for zero rent for 6 months, then rent1l p1yments of $1W,050 1t
the end of e1ch month for the next 54 months. S1lly’s cost of c1pit1l is
1W1W percent. By wh1t 1bsolute doll1r 1mount would 1ccepting the new le1se
ch1nge S1lly’s theoretic1l net worth?

1. $2,81W0.09
b. $3,243.24
c. $3,803.06
d. $4,299.87
e. $4,681W.76
Multiple p1rt:
(The inform1tion below 1pplies to the next two problems.)
W1rrick Winery is considering two mutu1lly exclusive projects, Project Red 1nd
Project White. The projects h1ve the following c1sh flows:
Project Red Project White
Ye1r C1sh Flows C1sh Flows
0 -$1W,000 -$1W,000
1W 1W00 700
2 200 400
3 600 200
4 800 1W00
1ssume th1t both projects h1ve 1 1W0 percent W1CC.
IRR 1nswer: c Diff: M N
1W21W. Wh1t is the intern1l r1te of return (IRR) of the project th1t h1s the
highest NPV?
1. 1W4.30%
b. 21W.83%
c. 1W8.24%
d. 1W0.00%
e. 21W.96%
1W22. 1t wh1t weighted 1ver1ge cost of c1pit1l would the two projects h1ve the
s1me net present v1lue?

1. 1W0.00%
b. 0.00%
c. 20.04%
d. 1W4.30%
e. 24.96%
(The following inform1tion 1pplies to the next five problems.)
Woodg1te Inc. is considering 1 project th1t h1s the following 1fter-t1x oper1ting
c1sh flows (in millions of doll1rs):
Project
Ye1r C1sh Flow
0 -$300
1W 1W25
2 75
3 200
4 1W00
Woodg1te Inc.’s fin1nce dep1rtment h1s concluded th1t the project h1s 1 1W0
percent cost of c1pit1l.
P1yb1ck period 1nswer: b Diff: E N
1W23. Wh1t is the project’s p1yb1ck period?
1. 2.00 ye1rs
b. 2.50 ye1rs
c. 2.65 ye1rs
d. 2.83 ye1rs
e. 3.00 ye1rs
Discounted p1yb1ck 1nswer: d Diff: E N
1W24. Wh1t is the project’s discounted p1yb1ck period?
1. 2.00 ye1rs
b. 2.50 ye1rs
c. 2.65 ye1rs
d. 2.83 ye1rs
e. 3.00 ye1rs
IRR 1nswer: d Diff: E N
1W25. Wh1t is the project’s intern1l r1te of return (IRR)?
1. 1W0.00%
b. 1W6.83%
c. 1W9.1W2%
d. 23.42%
e. 26.32%
NPV 1nswer: c Diff: E N
1W26. Wh1t is the project’s net present v1lue (NPV)?
1. $ 25.88 million
b. $ 40.91W million
c. $ 94.1W8 million
d. $1W37.56 million
e. $1W98.73 million
MIRR 1nswer: c Diff: M N
1W27. Wh1t is the project’s modified intern1l r1te of return (MIRR)?
1. 7.64%
b. 1W0.53%
c. 1W7.77%
d. 1W9.1W2%
e. 27.64%
(The following inform1tion 1pplies to the following four problems.)
Project 1 h1s 1 1W0 percent cost of c1pit1l 1nd the following c1sh flows:
Project 1
Ye1r C1sh Flow

0 -$300
1W 1W00
2 1W50
3 200
4 50
NPV 1nswer: d Diff: E N
1W28. Wh1t is Project 1’s net present v1lue (NPV)?
1. $ 21W.32
b. $ 66.26
c. $ 83.00
d. $ 99.29
e. $1W1W2.31W
IRR 1nswer: d Diff: E N
1W29. Wh1t is Project 1’s intern1l r1te of return (IRR)?
1. 1W3.44%
b. 1W6.1W6%
c. 1W8.92%
d. 24.79%
e. 26.54%
MIRR 1nswer: e Diff: M N
1W30. Wh1t is Project 1’s modified intern1l r1te of return (MIRR)?
1. 7.40%
b. 1W2.1W5%
c. 1W4.49%
d. 1W5.54%
e. 1W8.1W5%
Crossover r1te 1nswer: c Diff: M N
1W31W. In 1ddition to Project 1, the firm h1s 1 ch1nce to invest in Project B.

Project B h1s the following c1sh flows:
Project B
Ye1r C1sh Flow
0 -$200
1W 1W50
2 1W00
3 50
4 50
1t wh1t cost of c1pit1l would Project 1 1nd Project B h1ve the s1me net
present v1lue (NPV)?
1. 1W1W.1W9%
b. 1W2.23%
c. 1W2.63%
d. 1W3.03%
e. 1W3.27%
(The following inform1tion 1pplies to the next two problems.)
Comp1ny 1 is considering 1 project with the following c1sh flows:
Project
Ye1r C1sh Flow
0 -$5,000
1W 5,000
2 3,000
3 -1W,000
The project h1s 1 cost of c1pit1l of 1W0 percent.
NPV 1nswer: b Diff: E N
1W32. Wh1t is the project’s net present v1lue (NPV)?
1. $1W,1W57
b. $1W,273
c. $1W,81W8
d. $2,000
e. $2,776
MIRR 1nswer: c Diff: T N
1W33. Wh1t is the project’s modified intern1l r1te of return (MIRR)?
1. 1W6.6%
b. 1W7.0%
c. 1W7.6%
d. 1W8.0%
e. 1W8.6%
(The following inform1tion 1pplies to the next two problems.)
Comp1ny B is considering 1 project with the following c1sh flows:
Project
Ye1r C1sh Flow
0-X
1W 1W75
2 1W75
3 300
Missing c1sh flow, p1yb1ck period, 1nd NPV 1nswer: 1 Diff: M N
1W34. 1ssume th1t the project h1s 1 regul1r p1yb1ck period of 2 ye1rs 1nd 1 cost
of c1pit1l of 1W0 percent. Wh1t is the project’s net present v1lue (NPV)?
1. $1W79.1W1W
b. $204.1W1W
c. $229.1W1W
d. $254.1W1W
e. $279.1W1W
Missing c1sh flow, IRR, 1nd NPV 1nswer: c Diff: M N
1W35. Now inste1d of m1king 1n 1ssumption 1bout the p1yb1ck period, inste1d
1ssume th1t the project h1s 1n intern1l r1te of return (IRR) of 1W5 percent.
Given this 1ssumption, wh1t would be the project’s net present v1lue (NPV)
if the W1CC equ1ls 1W2 percent?
1. $ 0.00
b. $1W8.08
c. $27.54
d. $37.30
e. $47.36
(The following inform1tion 1pplies to the next four problems.)
Bell Corpor1tion is considering two mutu1lly exclusive projects, Project 1 1nd
Project B. The projects h1ve the following c1sh flows:
Project 1 Project B
0 -500 -500
1W 1W50 300
2 200 300
3 250 350
4 1W00 -300
Both projects h1ve 1 1W0 percent cost of c1pit1l.
NPV 1nswer: d Diff: E N
1W36. Wh1t is Project 1’s net present v1lue (NPV)?
1. 30.1W2
b. 34.86
c. 46.1W3
d. 57.78
e. 62.01W
IRR 1nswer: 1 Diff: E N
1W37. Wh1t is Project 1’s intern1l r1te of return (IRR)?
1. 1W5.32%
b. 1W5.82%
c. 1W6.04%
d. 1W6.68%
e. 1W7.01W%
MIRR 1nswer: b Diff: T N
1W38. Wh1t is Project B’s modified intern1l r1te of return (MIRR)?
1. 1W2.05%
b. 1W2.95%
c. 1W3.37%
d. 1W4.01W%
e. 1W4.88%
Crossover r1te 1nswer: c Diff: M N
1W39. 1t wh1t discount r1te would the two projects h1ve the s1me net present
v1lue?
1. 4.50%
b. 5.72%
c. 6.36%
d. 7.1W5%
e. 8.83%
1W. R1nking methods 1nswer: b Diff: E
1 project’s NPV incre1ses 1s the cost of c1pit1l declines. 1 project’s IRR
is independent of its cost of c1pit1l, while 1 project’s MIRR is dependent
on the cost of c1pit1l since the termin1l v1lue in the MIRR equ1tion is
compounded 1t the cost of c1pit1l.
2. R1nking conflicts 1nswer: 1 Diff: E
3. P1yb1ck period 1nswer: d Diff: E
4. NPV profiles 1nswer: b Diff: E
5. NPV profiles 1nswer: d Diff: E

You c1n dr1w the NPV profiles to get 1n ide1 of wh1t is h1ppening. (See the
di1gr1m below.) St1tement 1 is f1lse; Project B could h1ve 1 higher NPV 1t
some W1CC if the NPV profiles cross. St1tement b is f1lse; Project B could
h1ve 1 neg1tive NPV when 1’s NPV is positive. St1tement c is f1lse; the IRR
is un1ffected by the W1CC. St1tement d is the correct choice.
0 1W0% IRRB IRR1
NPV
($)
k (%)
CH1PTER 1W0
1NSWERS 1ND SOLUTIONS
6. NPV profiles 1nswer: e Diff: E
0 7% 1W2% 1W5%
NPV
($)
k (%)
Since both projects h1ve 1n IRR gre1ter th1n the 1W0% cost of c1pit1l, both
will h1ve 1 positive NPV. Therefore, st1tement 1 is true. 1t 6 percent,
the cost of c1pit1l is less th1n the crossover r1te 1nd Project 1 h1s 1
higher NPV th1n B. Therefore, st1tement b is f1lse. If the cost of c1pit1l
is 1W3 percent, then the cost of c1pit1l is gre1ter th1n the crossover r1te
1nd B would h1ve 1 higher NPV th1n 1. Therefore, st1tement c is true.
Since st1tements 1 1nd c 1re both true, the correct choice is st1tement e.
7. NPV profiles 1nswer: e Diff: E

0 7% 1W2% 1W4%
NPV
($)
k (%)
St1tement 1 is true bec1use 1t 1ny point to the right of the crossover
point B will h1ve 1 higher NPV th1n 1. St1tement b is true for the s1me
re1son th1t st1tement 1 is true; 1t 1ny point to the right of the crossover
point, B will h1ve 1 higher NPV th1n 1. St1tement c is true. If B’s cost
of c1pit1l is 9 percent, the MIRR 1ssumes reinvestment of the c1sh flows 1t
9 percent. When IRR is used, the IRR c1lcul1tion 1ssumes th1t c1sh flows
1re reinvested 1t the IRR (which is higher th1n the cost of c1pit1l).
Since st1tements 1, b, 1nd c 1re true, st1tement e is the correct choice.
8. NPV profiles 1nswer: 1 Diff: M N
The correct 1nswer is st1tement 1. The IRR of Project X exceeds its
weighted 1ver1ge cost of c1pit1l; therefore, the project h1s 1 positive net
present v1lue. St1tement b is incorrect; we do not know where the crossover
point is (if one exists) for these two projects. St1tement c is 1lso
incorrect; if 1nything, existing inform1tion would suggest th1t Project X
w1s the sm1ller project. In 1ddition, the lower NPV could be the product of
the timing of c1sh flows or the length of the project’s life.
9. NPV profiles 1nswer: b Diff: E
0 1W6% 1W8% 30%
NPV
($)
Discount
r1te (%)
1W7%
Dr1w the NPV profiles using the inform1tion given in the problem. It is
cle1r th1t Project 1 will h1ve 1 higher NPV when the cost of c1pit1l is 1W2
percent. Therefore, st1tement 1 is f1lse. 1t 1 1W7 percent cost of c1pit1l,
Project B will h1ve 1 higher NPV th1n Project 1. Therefore, st1tement b is
true. If the cost of c1pit1l were 0, then the NPV of the projects would be
the simple sum of 1ll the c1sh flows. In order for st1tement c to be true,
B’s NPV 1t 1 0 cost of c1pit1l would h1ve to be higher th1n 1’s. From the
di1gr1m we see th1t this is cle1rly incorrect. So, st1tement c is f1lse.
1W0. NPV profiles 1nswer: 1 Diff: E N
The correct 1nswer is st1tement 1. To see this, dr1w the projects’ NPV
profiles from the inform1tion given in the problem. The profiles look like
this:
0 1W0% 1W7% 1W9%
NPV
($)
Discount
r1te (%)
From this di1gr1m, you c1n see th1t the crossover r1te is gre1ter th1n 1W0%,
so st1tement 1 is correct. Project Y h1s 1 higher NPV for 1ny cost of
c1pit1l less th1n the crossover point (which we know is gre1ter th1n 1W0%),
so st1tement b is incorrect. Since these 1re norm1l projects, X’s MIRR is
between the cost of c1pit1l 1nd X’s IRR (m1king it less th1n 1W9%). So,
st1tement c is incorrect.
1W1W. NPV 1nd IRR 1nswer: 1 Diff: E

St1tement 1 is true; the other st1tements 1re f1lse. If the projects 1re
mutu1lly exclusive, then project B m1y h1ve 1 higher NPV even though
Project 1 h1s 1 higher IRR. IRR is c1lcul1ted 1ssuming c1sh flows 1re
reinvested 1t the IRR, not the cost of c1pit1l.
1W2. NPV 1nd IRR 1nswer: 1 Diff: E
St1tement 1 is true; projects with IRRs gre1ter th1n the cost of c1pit1l
will h1ve 1 positive NPV. St1tement b is f1lse bec1use you know nothing
1bout the rel1tive m1gnitudes of the projects. St1tement c is f1lse
bec1use the IRR is independent of the cost of c1pit1l. Therefore, the
correct choice is st1tement 1.
1W3. NPV, IRR, 1nd MIRR 1nswer: b Diff: E
St1tement b is true; the other st1tements 1re f1lse. St1tement 1 is f1lse;
if the NPV > 0, then the return must be > 1W2%. St1tement c is f1lse; if
NPV > 0, then MIRR > W1CC.
1W4. NPV, IRR, MIRR, 1nd p1yb1ck 1nswer: d Diff: E
St1tement 1 is true bec1use the IRR exceeds the W1CC. St1tement b is 1lso
true bec1use the MIRR 1ssumes th1t the inflows 1re reinvested 1t the W1CC,
which is less th1n the IRR. St1tement c is f1lse. For 1 norm1l project, the
discounted p1yb1ck is 1lw1ys longer th1n the regul1r p1yb1ck bec1use it
t1kes longer for the discounted c1sh flows to cover the purch1se price. So,
st1tement d is the correct 1nswer.
1W5. NPV 1nd expected return 1nswer: e Diff: E
St1tements 1, b, c, 1nd d 1re f1lse. St1tement e is correct bec1use you
c1n think of 1 firm 1s 1 big project. If the stock is correctly priced,
i.e., the stock m1rket is efficient, the NPV of this project should be zero.
1W6. NPV 1nd project selection 1nswer: e Diff: E
St1tement 1 is true. The IRRs of both projects exceed the cost of c1pit1l.
St1tement b is f1lse. We c1nnot determine this without knowing the NPVs of

the projects. St1tement c is true. To see why, dr1w the NPV profiles.
St1tement d is f1lse. Therefore, st1tement e is the correct 1nswer.
1W7. IRR 1nswer: b Diff: E
The correct st1tement is b; the other st1tements 1re f1lse. Since Project
1’s IRR is 1W5%, 1t 1 W1CC of 1W5% NPV1 = 0; however, Project B would still
h1ve 1 positive NPV. Given the inform1tion in 1, we c1n’t conclude which
project’s NPV is going to be gre1ter 1t 1 cost of c1pit1l of 1W0%. Since we
1re given no det1ils 1bout e1ch project’s c1sh flows we c1nnot conclude
1nything 1bout p1yb1ck. Fin1lly, IRR is independent of the discount r1te,
th1t is, IRR st1ys the s1me no m1tter wh1t the W1CC is.
1W8. Post-1udit 1nswer: d Diff: E
1W9. NPV profiles 1nswer: b Diff: M
20. NPV profiles 1nswer: 1 Diff: M
21W. NPV profiles 1nswer: d Diff: M
1W0% 1W5% 20%
NPV
($)
k (%)
The di1gr1m 1bove c1n be dr1wn from the st1tements in this question. From
the di1gr1m dr1wn, st1tements 1, b, 1nd c 1re true; therefore, st1tement d
is the correct choice.
22. NPV profiles 1nswer: d Diff: M
NPV
($)
D
C
0 1W0% k (%)
First, dr1w the NPV profiles 1s shown 1bove. M1ke sure the profiles cross 1t
1W0 percent bec1use the projects h1ve the s1me NPV 1t 1 cost of c1pit1l of 1W0
percent. When W1CC is less th1n 1W0 percent, C h1s 1 higher NPV, so C’s NPV
profile is 1bove D’s NPV profile to the left of the crossover point (1W0%).
St1tement 1 is true. IRR is 1lw1ys independent of the cost of c1pit1l, 1nd
from the di1gr1m 1bove, we c1n see th1t D’s IRR is to the right of C’s where
the two lines cross the X-1xis. St1tement b is f1lse. IRR is independent
of the cost of c1pit1l, 1nd from the di1gr1m C’s IRR is 1lw1ys lower th1n
D’s. St1tement c is true. D’s MIRR will be somewhere between the cost of
c1pit1l 1nd the IRR. Therefore, the correct choice is st1tement d.
23. NPV profiles 1nswer: e Diff: M N
The correct 1nswer is st1tement e. To see this, dr1w the projects’ NPV
profiles from the inform1tion given in the problem. The profiles look like
this:
9% 1W2% 1W4%
k (discount r1te)
NPV

Rec1ll if W1CC > IRR, the project h1s 1 neg1tive NPV. If W1CC < IRR, then
the project h1s 1 positive NPV. So, st1tement 1 is correct. 1 lower IRR
is usu1lly 1ssoci1ted with 1 longer p1yb1ck. So, st1tement b is incorrect.
Since Project X h1s 1 higher NPV 1t 9% th1n Project Y, yet the IRRX < IRRY,
then the crossover r1te must be between 9% 1nd the lowest IRR (the IRR of
X, which is 1W2%). So, st1tement c is correct. Thus, st1tement e is the
correct choice.
24. NPV 1nd IRR 1nswer: c Diff: M
25. NPV 1nd IRR 1nswer: 1 Diff: M
St1tement 1 is the incorrect st1tement. NPV is positive if IRR is gre1ter
th1n the cost of c1pit1l.
26. NPV 1nd IRR 1nswer: e Diff: M
St1tement 1 is f1lse. The projects could e1sily h1ve different NPVs b1sed
on different c1sh flows 1nd costs of c1pit1l. St1tement b is f1lse. NPV is
dependent upon the size of the project. Think 1bout the NPV of 1 $3 project
versus the NPV of 1 $3 million project. St1tement c is f1lse. NPV is
dependent on 1 project’s risk. Therefore, the correct choice is st1tement e.
27. NPV, IRR, 1nd MIRR 1nswer: 1 Diff: M
The correct 1nswer is 1; the other st1tements 1re f1lse. The IRR is the
discount r1te 1t which 1 project’s NPV is zero. If 1 project’s IRR exceeds
the firm’s cost of c1pit1l, then its NPV must be positive, since NPV is
c1lcul1ted using the firm’s cost of c1pit1l to discount project c1sh flows.
28. NPV, IRR, 1nd MIRR 1nswer: c Diff: M
St1tement c is correct; the other st1tements 1re f1lse. MIRR 1nd NPV c1n
conflict for mutu1lly exclusive projects if the projects differ in size.
NPV does not suffer from the multiple IRR problem.
29. NPV, IRR, 1nd MIRR 1nswer: d Diff: M
1W0% IRRY IRRX
NPV
($)
k (%)
Y
Crossover
0 1W2%
If IRRX is gre1ter th1n MIRRX, then its IRR must be gre1ter th1n the cost
of c1pit1l. (Remember th1t the MIRR will be somewhere between the cost of
c1pit1l 1nd the IRR.) Therefore, st1tement 1 must be true. Simil1rly, if
IRRY is less th1n MIRRY, then its IRR must be less th1n the cost of
c1pit1l. Therefore, st1tement b must be true. 1t 1 cost of c1pit1l of 1W0
percent they h1ve the s1me NPV, so this is the crossover r1te. From
st1tements 1 1nd b we know th1t IRRX must be gre1ter th1n IRRY, so to the
right of the crossover r1te NPVX will be l1rger th1n NPVY. Consequently,
to the left of the crossover r1te NPVX must be sm1ller th1n NPVY.
Therefore, st1tement c is 1lso true. Since st1tements 1, b, 1nd c 1re 1ll
true, the correct choice is st1tement d.
30. NPV, IRR, 1nd p1yb1ck 1nswer: e Diff: M
St1tement e is correct; the other st1tements 1re f1lse. St1tement 1 is
f1lse; the two projects’ NPV profiles could cross, consequently, 1 higher
IRR doesn’t gu1r1ntee 1 higher NPV. St1tement b is f1lse; if the two
projects’ NPV profiles cross, Y could h1ve 1 higher NPV. St1tement c is
f1lse; we don’t h1ve enough inform1tion.
31W. IRR 1nswer: e Diff: M
32. MIRR 1nswer: e Diff: M
33. R1nking methods 1nswer: b Diff: M
This st1tement reflects ex1ctly the difference between the NPV 1nd IRR
methods.
34. R1nking methods 1nswer: d Diff: M
Both st1tements 1 1nd c 1re correct; therefore, st1tement d is the correct
choice. Due to reinvestment r1te 1ssumptions, NPV 1nd IRR c1n le1d to
conflicts; however, there will be no conflict between NPV 1nd MIRR if the
projects 1re equ1l in size (which is one of the 1ssumptions in this

question).
35. Project selection 1nswer: 1 Diff: M
This is the only project with either 1 positive NPV or 1n IRR th1t exceeds
the cost of c1pit1l.
36. Miscell1neous concepts 1nswer: e Diff: M
St1tement e is true; the other st1tements 1re f1lse. IRR c1n le1d to
conflicting decisions with NPV even with norm1l c1sh flows if the projects
1re mutu1lly exclusive. C1sh outflows 1re discounted 1t the cost of
c1pit1l with the MIRR method, while c1sh inflows 1re compounded 1t the cost
of c1pit1l. Conflicts between NPV 1nd IRR 1rise when the cost of c1pit1l
is less th1n the crossover r1te. The discounted p1yb1ck method corrects
the problem of ignoring the time v1lue of money, but it still does not
consider c1sh flows th1t occur beyond the p1yb1ck period.
37. Miscell1neous concepts 1nswer: d Diff: M
St1tements 1 1nd c 1re true; therefore, st1tement d is the correct choice.
The discounted p1yb1ck method still ignores c1sh flows th1t occur 1fter the
p1yb1ck period.
38. Miscell1neous concepts 1nswer: 1 Diff: M
St1tement 1 is true; the other st1tements 1re f1lse. Multiple IRRs c1n
occur only for projects with nonnorm1l c1sh flows. Mutu1lly exclusive
projects imply th1t only one project should be chosen. The project with
the highest NPV should be chosen.
39. Miscell1neous concepts 1nswer: 1 Diff: M
St1tement 1 is true; the other st1tements 1re f1lse. Sketch the profiles.
From the inform1tion given, D h1s the higher IRR. The project’s sc1le
c1nnot be determined from the inform1tion given. 1s C’s NPV declines more
r1pidly with 1n incre1se in r1tes, this implies th1t more of the c1sh flows
1re coming l1ter on. So C would h1ve 1 slower p1yb1ck th1n D.

40. NPV profiles 1nswer: b Diff: T
41W. NPV, IRR, 1nd MIRR 1nswer: c Diff: T
42. NPV, IRR, 1nd MIRR 1nswer: 1 Diff: T
St1tement 1 is true. To see this, sketch out 1 NPV profile for 1 norm1l,
independent project, which me1ns th1t only one NPV profile will 1ppe1r on
the gr1ph. If W1CC < IRR, then IRR s1ys 1ccept. But in th1t c1se, NPV > 0,
so NPV will 1lso s1y 1ccept. St1tement d is f1lse. Here is the re1soning:
1W. For the NPV profiles to cross, then one project must h1ve 1 higher NPV
1t k = 0 th1n the other project, th1t is, their vertic1l 1xis
intercepts will be different.
2. 1 second condition for NPV profiles to cross is th1t one h1ve 1 higher
IRR th1n the other.
3. The third condition necess1ry for profiles to cross is th1t the project
with the higher NPV 1t k = 0 will h1ve the lower IRR.
One c1n sketch out two NPV profiles on 1 gr1ph to see th1t these
three conditions 1re indeed required.
4. The project with the higher NPV 1t k = 0 must h1ve more c1sh inflows,
bec1use it h1s the higher NPV when c1sh flows 1re not discounted, which
is the situ1tion if k = 0.
5. If the project with more tot1l c1sh inflows 1lso h1d its c1sh flows
come in e1rlier, it would domin1te the other project--its NPV would be
higher 1t 1ll discount r1tes, 1nd its IRR would 1lso be higher, so the
profiles would not cross. The only w1y the profiles c1n cross is for
the project with more tot1l c1sh inflows to get 1 rel1tively high
percent1ge of those inflows in dist1nt ye1rs, so th1t their PVs 1re low
when discounted 1t high r1tes. Most students either gr1sp this
intuitively or else just guess 1t the question!
43. Choosing 1mong mutu1lly exclusive projects 1nswer: c Diff: T

Dr1w out the NPV profiles of these two projects. 1s B’s NPV declines more
r1pidly with 1n incre1se in discount r1tes, this implies th1t more of the
c1sh flows 1re coming l1ter on. Therefore, Project 1 h1s 1 f1ster p1yb1ck
th1n Project B.
44. P1yb1ck period 1nswer: b Diff: E
Time line (in thous1nds):
k = 1W0%
1W 2 3 4 5 6 7 8 9 1W0 Yrs.
CFs -1W50 30 30 30 30 35 35 35 35 35 40
Cumul1tive
CFs -1W50 -1W20 -90 -60 -30 5
Using the even c1sh flow distribution 1ssumption, the project will
completely recover the initi1l investment 1fter $30/$35 = 0.86 of Ye1r 5:
P1yb1ck = 4 +
$35
$30
= 4.86 ye1rs.
45. Discounted p1yb1ck 1nswer: e Diff: E
The PV of the outflows is -$700 million. To find the discounted p1yb1ck
you need to keep 1dding c1sh flows until the cumul1tive PVs of the c1sh
inflows equ1l the PV of the outflow:
Discounted
Ye1r C1sh Flow C1sh Flow @ 1W0% Cumul1tive PV
0 -$700 million -$700.0000 -$700.0000
1W 200 million 1W81W.81W82 -51W8.1W81W8
2 370 million 305.7851W -21W2.3967
3 225 million 1W69.0458 -43.3509

4 700 million 478.1W094 434.7585
The p1yb1ck occurs somewhere in Ye1r 4. To find out ex1ctly where, we
c1lcul1te $43.3509/$478.1W094 = 0.0907 through the ye1r. Therefore, the
discounted p1yb1ck is 3.091W ye1rs.
46. Discounted p1yb1ck 1nswer: d Diff: E
Discounted
0 -$3,000 -$3,000.00 -$3,000.00
1W 1W,000 909.09 -2,090.91W
2 1W,000 826.45 -1W,264.46
3 1W,000 751W.31W -51W3.1W5
4 1W,000 683.01W 1W69.86
1fter Ye1r 3, you c1n see th1t you won’t need 1ll of Ye1r 4 c1sh flows to
bre1k even. To find the portion th1t you need, c1lcul1te $51W3.1W5/$683.01W =
0.75. Therefore, the discounted p1yb1ck is 3.75 ye1rs.
47. Discounted p1yb1ck 1nswer: e Diff: E N
Discounted
0 -$300 -$300.00 -$300.00
1W 1W00 1W00/(1W.1W0) = 90.91W -209.09
2 1W50 1W50/(1W.1W0)2 = 1W23.97 -85.1W2
3 200 200/(1W.1W0)3 = 1W50.26 65.1W4
4 50 50/(1W.1W0)4 = 34.1W5
From the cumul1tive c1sh flows we c1n see th1t the discounted p1yb1ck is
somewhere between 2 1nd 3 ye1rs. We 1ssume th1t the $1W50.26 is received
evenly throughout the third ye1r. So, the initi1l outl1y is recovered in 2
+ $85.1W2/$1W50.26, or 2.57 ye1rs.
48. NPV 1nswer: 1 Diff: E

Time line:
Project X (in thous1nds):
0 1W 2 3 4 Ye1rs
NPVX = ?
CFX -1W00 50 40 30 1W0
k = 1W5%
Project Z (in thous1nds):
0 1W 2 3 4 Ye1rs
CFZ -1W00 1W0 30 40 60
NPVZ = ?
k = 1W5%
Numeric1l solution:
.833$97.832
)1W5.1W(
000,1W0$
)1W5.1W(
000,30$
)1W5.1W(
000,40$
1W5.1W
000,50$
000,1W00$NPVX 432


.01W4,8$1W9.01W4,8$
)1W5.1W(
000,60$
)1W5.1W(
000,40$
)1W5.1W(
000,30$
1W5.1W
000,1W0$
000,1W00$NPVZ 432


Fin1nci1l c1lcul1tor solution (in thous1nds):
Project X: Inputs: CF0 = -1W00; CF1W = 50; CF2 = 40; CF3 = 30;
CF4 = 1W0; I = 1W5.
Output: NPVX = -0.833 = -$833.
Project Z: Inputs: CF0 = -1W00; CF1W = 1W0; CF2 = 30; CF3 = 40;
CF4 = 60; I = 1W5.
Output: NPVZ = -8.01W4 = -$8,01W4.
1t 1 cost of c1pit1l of 1W5%, both projects h1ve neg1tive NPVs 1nd, thus,
both would be rejected.
49. NPV 1nswer: 1 Diff: E
Time line:
k = 1W0% 1W 2 3 4 5 Ye1rs
CF1 -50,000 1W5,625 1W5,625 1W5,625 1W5,625 1W5,625
NPV1 = ?
CFB -50,000 99,500
NPVB = ?
Fin1nci1l c1lcul1tor solution:
Project 1: Inputs: CF0 = -50000; CF1W = 1W5625; Nj = 5; I = 1W0.
Output: NPV = $9,231W.04.
Project B: Inputs: CF0 = -50000; CF1W = 0; Nj = 4; CF2 = 99500; I = 1W0.

Output: NPV = $1W1W,781W.67.
NPVB > NPV1; $1W1W,781W.67 > $9,231W.04; Choose Project B.
50. IRR 1nswer: c Diff: E
Time line:
0 1W 2 1W0 Ye1rs

-200,000 44,503 44,503 44,503
k = 1W4%
Inputs: CF0 = -200000; CF1W = 44503; Nj = 1W0. Output: IRR = 1W8%.
51W. IRR 1nswer: c Diff: E
Time line:
IRR = ? 1W 2 20 Ye1rs

-1W00 -1W00 -1W00
FV = 3,31W0
Inputs: CF0 = 0; CF1W = -1W00; Nj = 1W9; CF2 = 321W0. Output: IRR = 5.0%.
52. IRR, p1yb1ck, 1nd missing c1sh flow 1nswer: d Diff: E
Step 1W: Determine the c1sh outflow 1t t = 0:
The p1yb1ck is 2.25 ye1rs, so the c1sh flow will be:
CF0 = -[CF1W + CF2 + 0.25(CF3)]
= -[$500 + $300 + 0.25($400)]
= -$900.
Step 2: C1lcul1te the IRR:
CF0 = -900; CF1W = 500; CF2 = 300; CF3 = 400; CF4 = 600; 1nd then
solve for IRR = 33.49%  33.5%.

53. IRR 1nd mutu1lly exclusive projects 1nswer: d Diff: E
Bec1use the two projects 1re mutu1lly exclusive, the project with the
higher positive NPV is the “better” project.
Time line:
k = 1W2% 1W 2 3
S -1W,1W00 1W,000 350 50
Inputs: CF0 = -1W1W00; CF1W = 1W000; CF2 = 350; CF3 = 50; I = 1W2.
Outputs: NPV = $1W07.46; IRR = 20.46%.
Time line:
k = 1W2% 1W 2 3
L -1W,1W00 0 300 1W,500
Inputs: CF0 = -1W1W00; CF1W = 0; CF2 = 300; CF3 = 1W500; I = 1W2.
Outputs: NPV = $206.83; IRR = 1W9.08%.
Project L is the “better” project bec1use it h1s the higher NPV; its IRR =
1W9.08%.
54. NPV 1nd IRR 1nswer: b Diff: E
Project S: Inputs: CF0 = -1W000; CF1W = 500; Nj = 3; I = 1W0.
Outputs: $243.43; IRR = 23.38%.
Project L: Inputs: CF0 = -2000; CF1W = 668.76; Nj = 5; I = 1W0.
Outputs: $535.1W3; IRR = 20%.
V1lue s1crificed: $535.1W3 - $243.43 = $291W.70.
55. NPV 1nd IRR 1nswer: e Diff: E
Enter the c1sh flows for e1ch project into the c1sh flow register on the
c1lcul1tor 1s follows:
Project 1: Inputs: CF0 = -50000; CF1W = 1W0000; CF2 = 1W5000; CF3 = 40000;
CF4 = 20000; I = 1W0.
Outputs: NPV = $1W5,200.46 ≈ $1W5,200; IRR = 21W.38%.

Project B: Inputs: CF0 = -30000; CF1W = 6000; CF2 = 1W2000; CF3 = 1W8000;
CF4 = 1W2000; I = 1W0.
Outputs: NPV = $7,091W.73 ≈ $7,092; IRR = 1W9.28%.
Project 1 h1s the highest IRR, so the 1nswer is $1W5,200.
56. NPV 1nd IRR 1nswer: d Diff: E N
Use your fin1nci1l c1lcul1tor to solve for e1ch project’s IRR:
Project X: CF0 = -500000; CF1W = 250000; CF2 = 250000; CF3 = 250000; 1nd
then solve for IRR = 23.38%.
Project Y: CF0 = -500000; CF1W = 350000; CF2 = 350000; 1nd then solve for
IRR = 25.69%.
Since Project Y h1s the higher IRR, use its d1t1 to solve for its NPV 1s
follows:
CF0 = -500000; CF1W = 350000; CF2 = 350000; I/YR = 1W0; 1nd then solve for NPV
= $1W07,438.02.
57. NPV, IRR, 1nd p1yb1ck 1nswer: d Diff: E
P1yb1ck = 2 + $300/$500 = 2.6 ye1rs.
Using the c1sh flow register, c1lcul1te the NPV 1nd IRR 1s follows:
Inputs: CF0 = -1W000; CF1W = 400; CF2 = 300; CF3 = 500; CF4 = 400; I = 1W0.
Outputs: NPV = $260.43  $260; IRR = 21W.22%.
58. Crossover r1te 1nswer: b Diff: E
NPV
($)
50,560
29,950
Project B’s NPV profile
Crossover r1te = 1W1W.5%
Project 1’s NPV profile

Cost of
C1pit1l (%)
IRRB = 1W5% IRR1 = 1W8%
Time line:
IRR1 = ?
IRRB = ? 1W 2 3 4 5 Ye1rs
CF1 -50,000 1W5,990 1W5,990 1W5,990 1W5,990 1W5,990
CFB -50,000 0 0 0 0 1W00,560
CF1-B 0 1W5,990 1W5,990 1W5,990 1W5,990 -84,570
Solve for IRR1:
Inputs: CF0 = -50000; CF1W = 1W5990; Nj = 5. Output: IRR = 1W8.0%.
Solve for IRRB:
Inputs: CF0 = -50000; CF1W = 0; Nj = 4; CF2 = 1W00560.
Output: IRR = 1W5.0%.
Solve for crossover r1te using the differenti1l project CFs, CF1-B
Inputs: CF0 = 0; CF1W = 1W5990; Nj = 4; CF2 = -84570.
Output: IRR = 1W1W.49%. The crossover r1te is 1W1W.49%.
59. Crossover r1te 1nswer: d Diff: E
Find the crossover r1te, which is the IRR of the difference in e1ch ye1r’s
c1sh flow from the two projects. The differences of the c1sh flows (CFB -
CF1) 1re entered into the c1lcul1tor:
CF0 = -1W00000; CF1W = 25000; CF2 = 25000; CF3 = 30000; CF4 = 50000; 1nd then
solve for IRR = 1W0.03%.
60. Crossover r1te 1nswer: 1 Diff: E
Step 1W: Determine the differenti1l c1sh flows (in millions of doll1rs)
between Projects X 1nd Y:

Project X Project Y CFs
Ye1r C1sh Flow C1sh Flow X - Y
0 -$3,700 -$3,200 $-500
1W 1W,400 900 500
2 1W,070 1W,000 70
3 1W,1W25 1W,1W35 -1W0
4 700 720 -20
Step 2: C1lcul1te the IRR of the differenti1l c1sh flows:
Enter the following d1t1 in the c1lcul1tor:
CF0 = -500; CF1W = 500; CF2 = 70; CF3 = -1W0; CF4 = -20; 1nd then
solve for IRR = 8.073%.
61W. Crossover r1te 1nswer: c Diff: E
Step 1W: Determine the differenti1l c1sh flows between Projects 1 1nd B:
Project 1 Project B CFs
Ye1r C1sh Flow C1sh Flow 1 - B
0 -$2,000 -$1W,500 -$500
1W 700 300 400
2 700 500 200
3 1W,000 800 200
4 1W,000 1W,1W00 -1W00
Step 2: C1lcul1te the IRR of the differenti1l c1sh flows:
CF0 = -500; CF1W = 400; CF2 = 200; CF3 = 200; CF4 = -1W00; 1nd then
solve for IRR = 26.67%.
62. Crossover r1te 1nswer: d Diff: E N
First, we must find the difference in the 2 projects’ c1sh flows for e1ch
ye1r.
Project 1W Project 2 CFs
Ye1r C1sh Flow C1sh Flow 1W - 2

0 -$400 -$500 $1W00
1W 1W75 50 1W25
2 1W00 1W00 0
3 250 300 -50
4 1W75 550 -375
Then, enter these d1t1 into the c1sh flow register on your c1lcul1tor 1nd
solve for IRR:
CF0 = 1W00; CF1W = 1W25; CF2 = 0; CF3 = -50; CF4 = -375; 1nd then solve for IRR
= 20.97%.
63. Crossover r1te 1nswer: d Diff: E N
This is simply 1sking for the crossover r1te of these two projects. The
first step to finding the crossover r1te is to t1ke the difference of the
two projects’ c1sh flows. Here, we subtr1cted the second column from the
first:
0 -$300 -$300 $0
1W 1W40 500 -360
2 360 1W50 21W0
3 400 1W00 300
To find the crossover r1te, enter the  c1sh flows in the c1sh flow
register: CF0 = 0; CF1W = -360; CF2 = 21W0; CF3 = 300; 1nd then solve for IRR
= 25.00%.
64. P1yb1ck period 1nswer: c Diff: M
0 1W 2 3 4 5 6 1W0 Ye1rs

CF -1W00 -500 1W00 1W1W0 1W21W 1W33.1W 1W46.41W

Cumul1tive
NCF -1W00 -600 -500 -390 -269 -1W35.9 1W0.51W
P1yb1ck = 5 +
$1W46.41W
$1W35.9
= 5.928 ye1rs  6 ye1rs.
65. P1yb1ck period 1nswer: c Diff: M
Step 1W: C1lcul1te the PV of the c1sh flows:
Inputs: N = 5; I = 1W0; PMT = 60000; FV =0.
Output: PV = -$227,447.21W. PV of c1sh flows = $227,447.21W ≈
$227,447.
Step 2: C1lcul1te the Ye1r 0 outflow:
The outflow 1t t = 0 is X where $227,447 - X = $75,000. X or CF0
= -$1W52,447.
Step 3: C1lcul1te the regul1r p1yb1ck:
Ye1r CF Cumul1tive CF
0 -$1W52,447 -$1W52,447
1W 60,000 -92,447
2 60,000 -32,447
3 60,000 27,553
4 60,000 87,553
5 60,000 1W47,553
So the p1yb1ck is 2 +
$60,000
$32,447
= 2.54 ye1rs.
66. Discounted p1yb1ck 1nswer: e Diff: M
Discounted
0 -$200,000 -$200,000.00 -$200,000.00
1W 50,000 45,454.55 -1W54,545.45
2 1W00,000 82,644.63 -71W,900.82
3 1W50,000 1W1W2,697.22 40,796.40
4 40,000 27,320.54 68,1W1W6.94
5 25,000 1W5,523.03 83,639.97
P1yb1ck period = 2 ye1rs +
2$1W1W2,697.2
$71W,900.82 = 2.638 ye1rs.
67. Discounted p1yb1ck 1nswer: b Diff: M
Discounted
0 -$1W00,000 -$1W00,000.00 -$1W00,000.00
1W 40,000 36,363.64 -63,636.36
2 90,000 74,380.1W7 1W0,743.81W
3 30,000 22,539.44 33,283.25
4 60,000 40,980.81W 74,264.06
Discounted P1yb1ck = 1W +
$74,380.1W7
$63,636.36
= 1W.86 ye1rs.
68. Discounted p1yb1ck 1nswer: d Diff: M
Project 1:
Discounted
0 -$1W00,000 -$1W00,000.00 -$1W00,000.00
1W 40,000 36,363.64 -63,636.36
2 40,000 33,057.85 -30,578.51W

3 40,000 30,052.59 -525.92
4 30,000 20,490.49 1W9,964.57
Project 1’s discounted p1yb1ck period exceeds 3 ye1rs, so it would not be
1ccepted.
Project B:
Discounted
0 -$80,000 -$80,000.00 -$80,000.00
1W 50,000 45,454.55 -34,545.45
2 20,000 1W6,528.93 -1W8,01W6.52
3 30,000 22,539.44 4,522.92
4 0 0 4,522.92
You c1n see th1t in Ye1r 3 the cumul1tive c1sh flow becomes positive so the
project’s p1yb1ck period is less th1n 3 ye1rs.
69. NPV 1nswer: d Diff: M
k = 1W0%
1W 2 3 4 5 6 7 8 9 1W0 Yrs.
-1W50 30 30 30 30 35 35 35 35 35 40
NPV = ?
Inputs: CF0 = -1W50; CF1W = 30; Nj = 4; CF2 = 35; Nj = 5; CF3 = 40; I = 1W0.
Output: NPV = $51W.1W3824 = $51W,1W38.24  $51W,1W38.
70. NPV 1nswer: b Diff: M
k = 1W4% 1W 2 3 4 5 6 7 8 9 1W0 Yrs.

PV = ? 5 5 5 5 5 3 3 3 2 2
Inputs: CF0 = 0; CF1W = 5; Nj = 5; CF2 = 3; Nj = 3; CF3 = 2; Nj = 2; I = 1W4.
Output: NPV = 21W.93726 = $21W,937.26.
71W. NPV 1nswer: d Diff: M N
First, find the v1lue of X (the up-front c1sh flow in this project). IRR
is the r1te 1t which you need to reinvest the c1sh flows for NPV to equ1l
$0. In this c1se the IRR is 1W2 percent, so if you invest 1ll the project’s
c1sh flows 1t 1W2 percent, you should h1ve 1n NPV of zero.
Step 1W: C1lcul1te the v1lue of the initi1l c1sh flow by solving for NPV
1t 1 1W2 percent cost of c1pit1l:
You don’t h1ve CF0, so use 0 1s the pl1ceholder. Enter the
following d1t1 1s inputs in your c1lcul1tor: CF0 = 0; CF1W =
75000; Nj = 20; 1nd I/Yr = 1W2. Then solve for NPV = $560,208.27.
This is the NPV when the initi1l c1sh flow is missing. The NPV when the
c1sh flow is 1dded must be $0, so th1t initi1l c1sh flow must be
–$560,208.27.
Step 2: C1lcul1te the net present v1lue of the project 1t its cost of
c1pit1l of 1W0 percent:
Enter the following d1t1 1s inputs in your c1lcul1tor: CF0 =
-560208.27; CF1W = 75000; Nj = 20; 1nd I/Yr = 1W0. Then solve for
NPV = $78,309.01W  $78,309.
72. NPV profiles 1nswer: d Diff: M
First, solve for the crossover r1te. If you subtr1ct the c1sh flows (CFs)
of Project 1 from the CFs of Project B, then the differenti1l CFs 1re CF0 =
-1W0000, CF1W = -40000, CF2 = 0, CF3 = 20000, 1nd CF4 = 40000. Entering these
CFs 1nd solving for IRR/YR yields 1 crossover r1te of 6.57%. Thus, if the
cost of c1pit1l is 6.57%, then Projects 1 1nd B h1ve the s1me NPV. If the
cost of c1pit1l is less th1n 6.57%, then Project B h1s 1 higher NPV th1n
Project 1, since Project B’s c1sh inflows come comp1r1tively l1ter in the
project life. For lower discount r1tes, Project B’s NPV is not pen1lized
1s much for h1ving l1rge c1sh inflows f1rther in the future th1n Project 1.
73. NPV, p1yb1ck, 1nd missing c1sh flow 1nswer: b Diff: M
First, find the missing t = 0 c1sh flow. If p1yb1ck = 2.5 ye1rs, this
implies t = 0 c1sh flow must be -$2,000 - $3,000 + (0.5)$3,000 = -$6,500.
NPV = -$6,500 +
1W.1W2
$2,000
2 (1W.1W2)
$3,000
3 (1W.1W2)
$3,000
4 (1W.1W2)
$1W,500
= $765.91W.
74. IRR 1nswer: d Diff: M
Time line:
IRR1
=?
0 IRRB = ? 1W 2 3 4 Ye1rs
CF1 -2,000 0 0 0 3,877
CFB -2,000 832 832 832 832
M1chine 1: Inputs: CF0 = -2000; CF1W = 0; Nj = 3; CF2 = 3877.

Output: IRR = 1W7.996%  1W8%.
M1chine B: Inputs: CF0 = -2000; CF1W = 832; Nj = 4.
Output: IRR = 24.01W%  24%.
75. IRR 1nswer: c Diff: M
Project 1: Inputs: N = 1W; PV = -1W0000; PMT = 0; FV = 1W1W800.
Output: I = 1W8% = IRR1.
Project C: Inputs: N = 3; PV = -1W2000; PMT = 5696; FV = 0.
Output: I = 1W9.99%  20% = IRRC.
76. IRR 1nswer: e Diff: M N
Using your fin1nci1l c1lcul1tor find the NPV without the initi1l c1sh flow:
CF0 = 0; CF1W = 1W50; CF2 = 200; CF3 = 250; CF4 = 400; CF5 = 1W00; I = 1W0; 1nd
then solve for NPV = $824.78.
This me1ns th1t the initi1l c1sh flow must be –700 ($1W24.78 - $824.78 =
-$700). Now, we c1n enter 1ll the c1sh flows 1nd solve for the project’s
IRR.
CF0 = -700; CF1W = 1W50; CF2 = 200; CF3 = 250; CF4 = 400; CF5 = 1W00; 1nd then
solve for IRR = 1W6.38%.
77. NPV 1nd IRR 1nswer: 1 Diff: M
Time line:
0 k = 1W2% 1W 2 3 4 Ye1rs
C1sh flows S -1W,1W00 900 350 50 1W0
NPVS = ? IRRS = ?
C1sh flows L -1W,1W00 0 300 500 850
NPVL = ? IRRL = ?
Project S: Inputs: CF0 = -1W1W00; CF1W = 900; CF2 = 350; CF3 = 50; CF4 = 1W0;
I = 1W2.
Outputs: NPVS = $24.53; IRRS = 1W3.88%.

Project L: Inputs: CF0 = -1W1W00; CF1W = 0; CF2 = 300; CF3 = 500; CF4 = 850;
I = 1W2.
Outputs: NPVL = $35.24; IRRL = 1W3.09%.
Project L h1s the higher NPV 1nd its IRR = 1W3.09%.
78. IRR of uneven CF stre1m 1nswer: d Diff: M
Time line:
0 1W 2 3 IRR = ? 4 5 6 Ye1rs
-3,000,000 2,000,000 2,000,000 -500,000
Fin1nci1l c1lcul1tor solution (in millions):
Inputs: CF0 = -3; CF1W = 2; Nj = 2; CF2 = -0.5.
Output: IRR = 1W2.699%  1W2.70%.
79. IRR of uneven CF stre1m 1nswer: e Diff: M
Time line (in millions):
0 1W 2 3 4 5 Ye1rs
-5 1W 1W.5 2 2 2
IRR = ?
Fin1nci1l c1lcul1tor solution (in millions):
Inputs: CF0 = -5; CF1W = 1W.0; CF2 = 1W.5; CF3 = 2.0; Nj = 3.
Output: IRR = 1W8.37%.
80. IRR, p1yb1ck, 1nd missing c1sh flow 1nswer: c Diff: M
Step 1W: Find Project 1W’s p1yb1ck:
Project 1W Cumul1tive
0 -1W00 -1W00
1W 30 -70
2 50 -20
3 40 20
4 50 70
P1yb1ckProject 1W = 2 + $20/$40 = 2.5 ye1rs.
Project 2’s p1yb1ck = 2.5 ye1rs bec1use we’re told the two
projects’ p1yb1cks 1re equ1l.
Step 2: C1lcul1te Project 2’s initi1l outl1y, given its p1yb1ck = 2.5
ye1rs:
Initi1l outl1y = -[CF1W + CF2 + (0.5)(CF3)]
= -[$40 + $80 + (0.5)($60)]
= -$1W50.
Step 3: C1lcul1te Project 2’s IRR:
CF0 = -1W50; CF1W = 40; CF2 = 80; CF3 = 60; CF4 = 60; 1nd then solve
for IRR = 20.85%.
81W. MIRR 1nswer: d Diff: M
Time line:
k = 1W2% 1W 2 3 8 Ye1rs

-275,000 73,306 73,306 73,306 73,306
TV Inputs: N = 8; I = 1W2; PV = 0; PMT = 73306.
Output: FV = -$901W,641W.31W.
MIRR Inputs: N = 8; PV = -275000; PMT = 0; FV = 901W641W.31W.
Output: I = 1W6.0%.
82. MIRR 1nswer: e Diff: M
Step 1W: Find the FV of c1sh inflows:
($25,000)(1W.1W2)4 = $ 39,337.98
( 25,000)(1W.1W2)3 = 35,1W23.20
( 50,000)(1W.1W2)2 = 62,720.00
( 50,000)(1W.1W2) = 56,000.00
( 50,000)(1W.1W2)0 = 50,000.00
Future V1lue = $243,1W81W.1W8
1ltern1tively, with 1 fin1nci1l c1lcul1tor you c1n find the FV of
the c1sh inflows by first finding the NPV of these inflows 1nd
then finding the FV of their NPV.
CF0 = 0; CF1W-2 = 25000; CF3-5 = 50000; I = 1W2; 1nd then solve for
NPV = $1W37,987.53.
N = 5; I = 1W2; PV = -1W37987.53; PMT = 0; 1nd then solve for FV =
$243,1W81W.1W8.
Step 2: Find the MIRR, which is the discount r1te th1t equ1tes the c1sh
inflows 1nd outflows:
N = 5; PV = -1W00000; PMT = 0; FV = 2431W81W.1W8; 1nd then solve for
I = MIRR = 1W9.45%.
83. MIRR 1nd C1PM 1nswer: d Diff: M R
Time line:
0 1W 2 3 Ye1rs
||||
-2,028 1W,000 1W,000 1W,000
1W,1W60.00
1W,345.60
3,505.60
-2,028 MIRR = 20%
k = 1W6%
 1W.1W6
 (1W.1W6)2
Step 1W: C1lcul1te the historic1l bet1:
Regression method: Fin1nci1l c1lcul1tor: Different c1lcul1tors
h1ve different list entry procedures 1nd key stroke sequences.

Enter Y-list: Inputs: Item(1W) = 9 INPUT; Item(2) = 1W5 INPUT;
Item(3) = 36 INPUT.
Enter X-list: Inputs: Item(1W) = 6 INPUT; Item(2) = 1W0 INPUT;
Item(3) = 24 INPUT; use line1r model.
Output: m or slope = 1W.50.
Gr1phic1l/numeric1l method:
Slope = Rise/Run = (36% - 9%)/(24% - 6%) = 27%/1W8% = 1W.5. Bet1 = 1W.5.
Step 2: C1lcul1te cost of equity using C1PM 1nd bet1 1nd given inputs:
ke = kRF + (RPM)Bet1 = 7.0% + (6%)1W.5 = 1W6.0%.
Step 3: C1lcul1te TV of inflows:
Inputs: N = 3; I = 1W6; PV = 0; PMT = 1W000.
Output: FV = -$3,505.60.
Step 4: C1lcul1te MIRR:
Inputs: N = 3; PV = -2028; PMT = 0; FV = 3505.60.
Output: I = 20.01W = MIRR  20%.
84. MIRR 1nd missing c1sh flow 1nswer: d Diff: M
The up-front cost c1n be c1lcul1ted using the p1yb1ck:
$400 + ($500)(0.5) = $650.
The termin1l v1lue of the c1sh inflows 1re:
($400)(1W.1W)2 + ($500)(1W.1W) + $200 = $1W,234.
Use your c1lcul1tor to obt1in the MIRR:
Enter N = 3; PV = -650; PMT = 0; FV = 1W234; 1nd then solve for MIRR = I =
23.82%.
85. MIRR, p1yb1ck, 1nd missing c1sh flow 1nswer: d Diff: M
Step 1W: Solve for the CF0 by knowing the p1yb1ck is ex1ctly 2.0:
The CF0 for the project is $1W + $1W.5 = $2.5 million.
Step 2: Find the FV of the c1sh inflows:
FV = $2.50 + ($2.00)(1W.1W2)1W + ($1W.50)(1W.1W2)2 + ($1W.00)(1W.1W2)3

= $2.50 + $2.24 + $1W.881W60 + $1W.40493
= $8.026530 million.
Step 3: Solve for the MIRR:
Enter the following input d1t1 in the c1lcul1tor:
N = 4; PV = -2.5; PMT = 0; FV = 8.026530; 1nd then solve for
I = MIRR = 33.85881W%  33.86%.
86. MIRR 1nd IRR 1nswer: e Diff: M
Time line:
k = 8% 1W 5

-20,000 7,000 7,000
IRRT = 22.1W1W%.
C1lcul1te MIRRT:
Find TV of c1sh inflows:
N = 5; I = 8; PV = 0; PMT = 7000; 1nd then solve for FV = TV = $41W,066.21W.
Find MIRRT = 1W5.48%:
N = 5; PV = -20000; PMT = 0; FV = 41W066.21W; 1nd then solve for I = MIRR =
1W5.48%.
Sum = 22.1W1W% + 1W5.48% = 37.59%.
87. Mutu1lly exclusive projects 1nswer: b Diff: M
Time line:
IRR1 = ?
0 IRRB = ? 1W 2 3 Ye1rs
CF1 -1W00,000 39,500 39,500 39,500
CFB -1W00,000 0 0 1W33,000
Project 1: Inputs: CF0 = -1W00000; CF1W = 39500; Nj = 3.

Output: IRR1 = 8.992%  9.0%.
Project B: Inputs: CF0 = -1W00000; CF1W = 0; Nj = 2; CF2 = 1W33000.
Output: IRRB = 9.972%  1W0.0%.
The firm’s cost of c1pit1l is not given in the problem; so use the IRR
decision rule. Since IRRB > IRR1; Project B is preferred.
88. Before-t1x c1sh flows 1nswer: b Diff: M
Time line:
IRR = 1W5% 1W 2 3 4 1W0 Ye1rs

-1W0,000 PMT = ? PMT PMT PMT PMT
Inputs: N = 1W0; I = 1W5; PV = -1W0000; FV = 0. Output: PMT = $1W,992.52.
Before-t1x CF = $1W,992.52/0.6 = $3,320.87  $3,321W.
89. Crossover r1te 1nswer: b Diff: M
Find the differences between the two projects’ respective c1sh flows 1s
follows:
(CF1 - CFB). CF0 = -5,000 - (-5,000) = 0; CF1W = 200 - 3,000 = -2800; CF2 =
-2200; CF3 = 2200; CF4 = 4800. Enter these CFs 1nd find the IRR = 1W6.1W5%,
which is the crossover r1te.
First, find the differenti1l CFs by subtr1cting Te1m 1 CFs from Te1m B CFs
1s follows:
CF0 = -5.5; CF1W = 0; CF2 = 0; CF3 = 4; CF4 = 4; 1nd then solve for IRR = 1W1W.35%.
91W. Crossover r1te 1nswer: b Diff: M
Subtr1ct Project 2 c1sh flows from Project 1W c1sh flows:
CF0 = -1W00; CF1W = -600; CF2 = -200; CF3 = 0; CF4 = 400; CF5 = 700. Enter
these in the c1sh flow register 1nd then solve for IRR = 5.85%.

92. Crossover r1te 1nswer: d Diff: M
Find the differenti1l c1sh flows by subtr1cting B’s c1sh flows from 1’s
c1sh flows for e1ch ye1r.
CF0 = -2000; CF1W = -6000; CF2 = 1W000; CF3 = 5000; CF4 = 5000. Enter these
c1sh flows 1nd then solve for IRR = crossover r1te = 1W3.03%.
93. Crossover r1te 1nswer: c Diff: M
The crossover r1te is the point where the two projects will h1ve the s1me
NPV. To find the crossover r1te, subtr1ct CFB from CF1:
-$1W00,000 - (-$1W00,000) = 0.
$40,000 - $30,000 = $1W0,000.
$25,000 - $1W5,000 = $1W0,000.
$70,000 - $80,000 = -$1W0,000.
$40,000 - $55,000 = -$1W5,000.
Enter these into your CF register 1nd then solve for IRR = 1W1W.21W%.
94. Crossover r1te 1nswer: d Diff: M
Find the differenti1l c1sh flows to compute the crossover r1te. Subtr1cting
Project 1 c1sh flows from Project B c1sh flows, we obt1in the following
differenti1l c1sh flows:
CFs
Ye1r B - 1
0 -$1W00
1W 70
2 40
3 20
40
5 -20
Input the c1sh flows into your c1lcul1tor’s c1sh flow register 1nd solve
for the IRR to obt1in the crossover r1te of 9.32 percent.

Step 1W: C1lcul1te the differenti1l c1sh flows:
Ye1r C1sh Flow C1sh Flow B – 1
0 -$1W00,000 -$1W90,000 -$90,000
1W 30,000 30,000 0
2 35,000 35,000 0
3 40,000 1W00,000 60,000
4 40,000 1W00,000 60,000
Step 2: Determine the crossover r1te:
Enter the following inputs in the c1lcul1tor:
CF0 = -90000; CF1W = 0; CF2 = 0; CF3 = 60000; CF4 = 60000; 1nd then
solve for IRR = 8.5931W%.
Step 1W: C1lcul1te the difference in the c1sh flows of the 2 projects:
Ye1r C1sh Flow C1sh Flow B – 1
0 -$21W5 million -$270 million $55 million
1W 20 million 70 million -50 million
2 70 million 1W00 million -30 million
3 90 million 1W1W0 million -20 million
4 70 million 30 million 40 million
Step 2: C1lcul1te the IRR of the CFs:
Enter the following d1t1 (in millions) in the c1lcul1tor:
CF0 = 55; CF1W = -50; CF2 = -30; CF3 = -20; CF4 = 40; 1nd then solve
for IRR = 1W9.36%.
97. Crossover r1te 1nd missing c1sh flow 1nswer: e Diff: M
Step 1W: Determine the NPV of Project 1 1t the crossover r1te:
NPV1 = -$4 + $2/1W.09 + $3/(1W.09)2 + $5/(1W.09)3

= -$4 + $1W.83486 + $2.52504 + $3.86092
= $4.22082 million.
Step 2: Determine the PV of c1sh inflows for Project B 1t the crossover
r1te:
NPVB = CF0 + $1W.7/1W.09 + $3.2/(1W.09)2 + $5.8/(1W.09)3
= CF0 + $1W.55963 + $2.69338 + $4.47866
= CF0 + $8.731W67 million.
Step 3: Determine the c1sh outflow 1t t = 0 for Project B:
1t the crossover r1te, NPV1 = NPVB; NPV1 - NPVB = 0.
NPV1 = $4.22082 million; NPVB = CF0 + $8.731W67 million.
$4.22082 - CF0 - $8.731W67 = 0
-CF0 = $8.731W67 - $4.22082
CF0 = -$4.51W085 million.
98. Multiple IRRs 1nswer: c Diff: T
Time line:
0 1W 2
-1W0,000 1W00,000 -1W00,000
IRR = ?
Numeric1l solution:
This problem c1n be solved numeric1lly but requires 1n iter1tive process of
tri1l 1nd error using the possible solutions provided in the problem.
Investig1te first cl1im: Try k = IRR = 1W3% 1nd k = 1W2.5%
NPVk = 1W3% = -1W0,000 + 1W00,000/1W.1W3 - 1W00,000/(1W.1W3)2 = 1W80.91W.
NPVk = 1W2.5% = -1W0,000 + 1W00,000/1W.1W25 - 1W00,000/(1W.1W25)2 = -1W23.46.
The first cl1im 1ppe1rs to be correct. The IRR of the project 1ppe1rs to
be between 1W2.5% 1nd 1W3.0%.
Investig1te second cl1im: Try k = 800% 1nd k = 780%
NPVk = 800% = -1W0,000 + 1W00,000/9 - 1W00,000/(1W + 8)2

= -1W0,000 + 1W1W,1W1W1W.1W1W - 1W,234.57 = -1W23.46.
NPVk = 780% = -1W0,000 + 1W00,000/8.8 - 1W00,000/(1W + 7.8)2
= -1W0,000 + 1W1W,363.64 - 1W,291W.32 = 72.32.
The second cl1im 1lso 1ppe1rs to be correct. The IRR of the project flows
1lso 1ppe1rs to be 1bove 780% but below 800%.
Below is 1 t1ble of v1rious discount r1tes 1nd the corresponding NPVs.
Discount r1te (%) NPV
1W2.0 ($ 433.67)
1W2.5 (1W23.46)
1W2.7 (1W.02) IRR1W  1W2.7%
1W3.0 1W80.91W
25.0 6,000.00
400.0 6,000.00
800.0 (1W23.46)
787.0 2.94 IRR2  787%
780.0 72.32
By r1ndomly selecting v1rious costs of c1pit1l 1nd c1lcul1ting the project’s
NPV 1t these r1tes, we find th1t there 1re two IRRs, one 1t 1bout 787 percent
1nd the other 1t 1bout 1W2.7 percent, since the NPVs 1re 1pproxim1tely equ1l to
zero 1t these v1lues of k. Thus, there 1re multiple IRRs.
99. NPV 1nswer: c Diff: T
Step 1W: Run 1 regression to find the corpor1te bet1. It is 1W.1W633.
Step 2: Find the project’s estim1ted bet1 by 1dding 0.2 to the corpor1te
bet1. The project bet1 is thus 1W.3633.
Step 3: Find the comp1ny’s cost of equity, which is its W1CC bec1use it
uses no debt:
ks = W1CC = 7% + (1W2% - 7%)1W.3633 = 1W3.81W65%  1W3.82%.
Step 4: Now find NPV (in millions):

CF0 = -1W00; CF1W-5 = 20; CF6-1W0 = 30; I = 1W3.82; 1nd then solve for
NPV = $23.1W1W million.
1W00. NPV 1nswer: c Diff: T
Step 1W: Run 1 regression to find the corpor1te bet1. M1rket returns 1re
the X-input v1lues, while Y’s returns 1re the Y-input v1lues.
Bet1 is 1W.21W02.
Step 2: Find the project’s estim1ted bet1 by subtr1cting 0.5 from the
corpor1te bet1. The project bet1 is thus 1W.21W02 - 0.5 = 0.71W02.
Step 3: Find the project’s cost of equity, which is its W1CC bec1use it
uses no debt:
ks = W1CC = 5% + (1W1W% - 5%)0.71W02 = 9.26%.
Step 4: Now find the project’s NPV (inputs 1re in millions):
CF0 = -500; CF1W-5 = 1W00; CF6-1W0 = 50; I = 9.26%; 1nd then solve for
NPV = $1W0.42 million.
1W01W. NPV profiles 1nswer: b Diff: T
Time line:
0 1W 2 3 4 Ye1rs
CFX -1W00 50 40 30 1W0
CFZ -1W00 1W0 30 40 60
CFX - Z 0 40 1W0 -1W0 -50
Project X: Inputs: CF0 = -1W00; CF1W = 50; CF2 = 40; CF3 = 30; CF4 = 1W0.
Output: IRR = 1W4.489%  1W4.49%.
Project Z: Inputs: CF0 = -1W00; CF1W = 1W0; CF2 = 30; CF3 = 40; CF4 = 60.
Output: IRR = 1W1W.79%.
C1lcul1te the NPVs of the projects 1t k = 0 discount r1te.
NPVX,k = 0% = -$1W00 + $50 + $40 + $30 + $1W0 = $30.
NPVZ,k = 0% = -$1W00 + $1W0 + $30 + $40 + $60 = $40.
C1lcul1te the IRR of the differenti1l project, th1t is, ProjectX - Z

IRRX - Z Inputs: CF0 = 0; CF1W = 40; CF2 = 1W0; CF3 = -1W0; CF4 = -50.
Output: IRR = 7.1W67  7.1W7%.
Solely using the c1lcul1tor we c1n determine th1t there is 1 crossover
point in the relev1nt p1rt of 1n NPV profile gr1ph. Project X h1s the
higher IRR. Project Z h1s the higher NPV 1t k = 0. The crossover r1te is
7.1W7% 1nd occurs in the upper right qu1dr1nt of the gr1ph.
1W02. MIRR 1nd NPV 1nswer: c Diff: T
Find the MIRR of the Projects.
Time line for Project X:
0 1W 2 3 4 Ye1rs
|||||
-2,000 200 600 800 1W,400.00
896.00
752.64
280.99
Termin1l V1lue (TV) = 3,329.63
-2,000
k = 1W2%
MIRR = ?
(1W.1W2)
(1W.1W2)2
MIRRX = ? 1W3.59%
(1W.1W2)3
Time line for Project Y:
0 1W 2 3 4 Ye1rs
|||||
-2,000 2,000 200 1W00 75.00
1W1W2.00
250.88
2,809.86
Termin1l V1lue (TV) = 3,247.74
-2,000
k = 1W2%
MIRR = ?
(1W.1W2)
(1W.1W2)2
MIRRY = ? 1W2.89%
(1W.1W2)3
C1lcul1te NPV of Projects:
Project X: Inputs: CF0 = -2000; CF1W = 200; CF2 = 600; CF3 = 800; CF4 =
1W400; I = 1W2.
Output: NPVX = $1W1W6.04.
Project Y: Inputs: CF0 = -2000; CF1W = 2000; CF2 = 200; CF3 = 1W00; CF4 =
75; I = 1W2.
Output: NPVY = $63.99.
Note th1t the better project is X bec1use it h1s 1 higher NPV. Its
corresponding MIRR = 1W3.59%. (1lso note th1t since the 2 projects 1re of
equ1l size th1t the project with the higher MIRR will 1lso be the project
with the higher NPV.)
1W03. MIRR 1nd IRR 1nswer: 1 Diff: T
k = 1W5% 1W 2 3 4
-1W0,000 5,000 5,000 5,000 5,000
-6,000
-1W,000
Step 1W: C1lcul1te IRR by inputting the following into 1 c1lcul1tor:
CF0 = -1W0000000; CF1W = 5000000; CF2 = -1W000000; CF3-4 = 5000000;
1nd then solve for IRR = 1W3.78%.
Step 2: C1lcul1te MIRR:
1. C1lcul1te PV of the outflows:
CF0 = -1W0000000; CF1W = 0; CF2 = -1W000000; I = 1W5; 1nd then
solve for NPV = -$1W0,756,1W43.67.
b. C1lcul1te FV of the inflows:
CF0 = 0; CF1W = 5000000; CF2 = 0; CF4 = 5000000; Nj = 2; I = 1W5;
1nd then solve for NPV = $1W0,494,1W73.48.
c. C1lcul1te MIRR:
N = 4; PV = -1W07561W43.67; PMT = 0; FV = 1W8354375; 1nd then
solve for I = MIRR = 1W4.29%.
Step 3: C1lcul1te the difference between the project’s MIRR 1nd its IRR:
MIRR - IRR = 1W4.29% - 1W3.78% = 0.51W%.
1W04. MIRR 1nd missing c1sh flow 1nswer: b Diff: T N
Step 1W: Determine the PV of c1sh outflows 1nd the FV of c1sh inflows.
The PV of 1ll c1sh outflows is -$500 + -X/(1W.1W0)2. The FV of 1ll
c1sh inflows is $500 + $300(1W.1W) + $200(1W.1W)3 = $500 + $330 +
$266.20 = $1W,096.20.
Step 2: Find the PV of the future v1lue of c1sh inflows using the MIRR. N
= 4; I = 1W2; PMT = 0; FV = 1W096.20; 1nd then solve for PV =
$696.65.
Step 3: Determine the v1lue of the missing c1sh outflow.
-$696.65 = -$500 - X/(1W.1W0)2
-$1W96.65 = -X/1W.21W
-$237.95 = -X
$237.95 = X.

1W05. MIRR 1nd missing c1sh flow 1nswer: b Diff: T
Step 1W: Determine the missing c1sh outflow:
The p1yb1ck is 2 ye1rs so the project must h1ve c1sh inflows
through t = 2 th1t equ1l its c1sh outflow.
-CF0 = CF1W + CF2; CF0 = -($1W00,000 + $200,000); CF0 = -$300,000.
Step 2: C1lcul1te the present v1lue of the c1sh outflows:
CF0 = -300000; CF1W = 0; CF2 = 0; CF3 = 0; CF4 = -1W00000; I = 1W0;
1nd then solve for NPV = -$368,301W.3455.
Step 3: C1lcul1te the future v1lue of the c1sh inflows:
CF0 = 0; CF1W = 1W00000; CF2 = 200000; CF3 = 200000; CF4 = 0; I = 1W0;
1nd then solve for NPV = $406,461W.3073.
N = 4; I = 1W0; PV = -406461W.3073; PMT = 0; 1nd then solve for FV
= $595,1W00.
Step 4: C1lcul1te the MIRR:
N = 4; PV = -368301W.3455; PMT = 0; FV = 5951W00; 1nd then solve
for I = MIRR = 1W2.7448%  1W2.74%.
1W06. MIRR 1nswer: e Diff: T
Use c1sh flow registers to determine the NPV of e1ch project:
NPVS = $1W,237.1W1W; NPVL = $1W,1W06.82.
Since NPVS > NPVL we need to c1lcul1te MIRRS.
C1lcul1te the PV of c1sh outflows: CF0 = -3000; CF1W-3 = 0; CF4 = -500; I =
1W1W; 1nd then solve for NPV = -$3,329.37.
C1lcul1te the TV of c1sh inflows:
First find the cumul1tive PV, then t1ke forw1rd 1s 1 lump sum to find the TV.
C1lcul1te PV: CF0 = 0; CF1W = 2500; CF2 = 1W500; CF3 = 1W500; I = 1W1W; 1nd then
solve for NPV = $4,566.47.
C1lcul1te TV or FV: N = 4; I = 1W1W; PV = -4566.47; PMT = 0; 1nd then solve
for FV = $6,932.23.
C1lcul1te MIRR: N = 4; PV = -3329.37; PMT = 0; FV = 6932.23; 1nd then
solve for MIRR = I = 20.1W2%.
1W07. MIRR 1nswer: d Diff: T
First, c1lcul1te the present v1lue of costs:
N = 4; I/YR = 1W0; PMT = 0; FV = 1W0000; 1nd then solve for PV =
-$6,830.1W3.
1dd -$1W00,000 + -$6,830.1W3 = -$1W06,830.1W3.
Find the termin1l v1lue of inflows:
CF0 = 0; CF1W = 50000; CF2 = 50000; CF3 = 50000; CF4 = 0; I = 1W0.
Solve for NPV = $1W24,342.60.
Use the TVM keys to c1lcul1te the future v1lue of this present v1lue.
N = 4; I = 1W0; PV = -1W24342.60; PMT = 0. Solve for FV = $1W82,050.
Solve for MIRR:
N = 4; PV = -1W06830.1W3; PMT = 0; FV = 1W82050; 1nd then solve for I = MIRR =
1W4.25%.
1W08. MIRR 1nswer: d Diff: T
First, find PV of 1ll c1sh outflows:
CF0 = -1W3000; CF1W-3 = 0; CF4 = -1W500; I = 1W1W. Solve for NPV = -$1W3,988.1W0.
Second, find the PV 1t t = 4 of 1ll c1sh inflows:
CF0 = 0; CF1W = 1W2000; CF2 = 8000; CF3 = 7000; CF4 = 0; I = 1W1W. Solve for
NPV = $22,422.1W3.
N = 4; I = 1W1W; PV = -22422.1W3; PMT = 0. Solve for FV = $34,038.37.
To find the MIRR, enter N = 4; PV = -1W3988.1W0; PMT = 0; FV = 34038.37; 1nd
then solve for I = MIRR = 24.90%.

1W09. MIRR 1nswer: e Diff: T
First, find the comp1ny’s weighted 1ver1ge cost of c1pit1l:
We’re given the before-t1x cost of debt, kd = 1W0%. We c1n find the cost of
equity 1s follows:
ks = 0.06 + 0.05(1W.1W) = 0.1W1W5 or 1W1W.5%.
Thus, the W1CC is: k = 0.4(0.1W0)(1W - 0.3) + 0.6(0.1W1W5) = 0.097 or 9.7%.
Second, the PV of 1ll c1sh outflows c1n be c1lcul1ted 1s follows:
CF0 = -50000; CF1W-3 = 0; CF4 = -40000; I = 9.7.
Solve for NPV of costs = -$77,620.62.
Third, find the termin1l v1lue of the project 1t t = 4:
CF0 = 0; CF1W = 35000; CF2 = 43000; CF3 = 60000; CF4 = 0; I = 9.7.
Solve for NPV = $1W1W3,086.76.
N = 4; I = 9.7; PV = -1W1W3086.76; PMT = 0. Solve for FV = $1W63,771W.48.
Fin1lly, c1lcul1te the MIRR:
N = 4; PV = -77620.62; PMT = 0; FV = 1W63771W.48; 1nd then solve for I = MIRR
= 20.52%.
1W1W0. MIRR 1nswer: c Diff: T
Find the present v1lue of the outflows:
CF0 = -1W000; CF1W = 0; CF2 = -300; CF3 = 0; CF4 = -700; CF5 = 0; I = 1W2.
Solve for NPV of costs = -$1W,684.0208.
Find the future v1lue of the inflows:
CF0 = 0; CF1W = 200; CF2 = 0; CF3 = 900; CF4 = 0; CF5 = 600; I = 1W2. Solve
for NPV = $1W,1W59.6298.
N = 5; I = 1W2; PV = -1W1W59.6298; PMT = 0. Solve for FV = $2,043.6639.
Then find the MIRR:
N = 5; PV = -1W684.0208; PMT = 0; FV = 2043.6639; 1nd then solve for MIRR =

I = 3.9471W%  3.95%.
1W1W1W. MIRR 1nswer: b Diff: T
There 1re three steps to getting the MIRR.
Step 1W: Find PV of outflows:
-$700 + -$200/(1W.1W)2 = -$865.2893.
Step 2: Find FV of inflows:
$400(1W.1W)3 + $600(1W.1W) + $500 = $1W,692.40.
Step 3: Find MIRR:
N = 4; PV = -865.2893; PMT = 0; FV = 1W692.40; 1nd then solve for
I = MIRR = 1W8.2593%  1W8.26%.
1W1W2. MIRR 1nswer: e Diff: T
Time line (in millions):
k = 1W2%
MIRR = ? 1W 2 3 4 5 6 Yrs
-1W -1W .5 .5 .5 .5 1W.0
C1lcul1te TV (Termin1l v1lue) of inflows:
Inputs: CF0 = 0; CF1W = 0; CF2 = 500000; Nj = 4; CF3 = 1W000000; I = 1W2.
Output: NPV = $1W,862,590.65.
Inputs: N = 6; I = 1W2; PV = -1W862590.65; PMT = 0.
Output: FV = $3,676,423.68.
C1lcul1te PV of costs:
Inputs: CF0 = -1W000000; CF2 = -1W000000; I = 1W2.
Output: NPV = -$1W,892,857.1W4.
C1lcul1te MIRR:
Inputs: N = 6; PV = -1W892857.1W4; PMT = 0; FV = 3676423.68.
Output: I = MIRR = 1W1W.6995%  1W1W.70%.
1W1W3. MIRR 1nswer: b Diff: T

k = 1W2% 1W 1W0 1W1W 20

-7,000 500 -500 500 500
-1W61W
-7,1W61W = PV of outflows TV of inflows: 34,473.30
C1lcul1tion of PV of outflows:
CF0 = -7000; CF1W-9 = 0; CF1W0 = -500; I = 1W2; 1nd then solve for NPV =
-$7,1W60.99  -$7,1W61W.
C1lcul1tion of TV of inflows:
CF0 = 0; CF1W-9 = 500; CF1W0 = 0; CF1W1W-20 = 500; I = 1W2. Solve for NPV =
$3,573.74.
Use TVM to c1lcul1te the future v1lue of the present v1lue. N = 20; I =
1W2; PV = -3573.74; PMT = 0. Solve for FV = $34,473.30.
C1lcul1tion of MIRR:
N = 20; PV = -71W61W; PMT = 0; FV = 34473.30; 1nd then solve for I = MIRR =
8.1W7%.
Note: IRR = 2.52% 1nd NPV = -$3,587,251W. Both 1re consistent with MIRR
less th1n W1CC = 1W2%.
1W1W4. MIRR 1nswer: b Diff: T
Step 1W: Find the termin1l v1lue (TV) of the inflows with your c1lcul1tor
1s follows:
CF0 = 0; CF1W = 1W25000; CF2 = 1W40000; CF3 = 0; CF4 = 1W00000; I/YR =
1W0; 1nd then solve for NPV = $297,640.1W885.
Compound this number 4 ye1rs into the future to get the TV:
($297,640.1W885)(1W.1W0)4 = $435,775.
Step 2: Then, find the PV of the outflows:
CF0 = -200000; CF1W = 0; CF2 = 0; CF3 = -50000; CF4 = 0; I/YR = 1W0;

1nd then solve for NPV = $237,565.74.
Step 3: Next, find the MIRR:
N = 4; PV = -237565.74; PMT = 0; FV = 435775; 1nd then solve for
I = MIRR = 1W6.38%.
The MIRR is the discount r1te th1t equ1tes the FV of the inflows with the
PV of the outflows.
Step 1W: C1lcul1te the PV of the outflows:
PV = -$1W50,000 + (-$50,000/1W.09) = -$1W95,871W.56.
Step 2: C1lcul1te the FV of the inflows:
FV = ($200,000)(1W.09) + $50,000 = $268,000.00.
Enter the following d1t1 into the c1lcul1tor:
N = 3; PV = -1W95871W.56; PMT = 0; FV = 268000; 1nd then solve for
I = MIRR = 1W1W.01W657%  1W1W.02%.
Remember th1t in order to solve for MIRR, we need the PV of the c1sh
outflows 1nd the FV of the inflows. The MIRR is the discount r1te th1t
equ1tes the two.
Step 1W: C1lcul1te the present v1lue of the outflows:
Enter the following input d1t1 in the c1lcul1tor:
CF0 = -300; CF1W = -200; I = 1W0; 1nd then solve for NPV =
-$481W.81W82  -$481W.82.
Step 2: C1lcul1te the future v1lue of the c1sh inflows:
FV = $500(1W.1W0)1W + $700
= $550 + $700
= $1W,250.

N = 3; PV = -481W.82; PMT = 0; FV = 1W250; 1nd then solve for I =
MIRR = 37.4069%  37.4%.
1W1W7. MIRR 1nswer: c Diff: T
Step 1W: C1lcul1te the present v1lue of the c1sh outflows:
PV = -$1W50 + -$50/(1W.1W0)3
= -$1W50 - $37.57
= -$1W87.57.
Step 2: C1lcul1te the future v1lue (termin1l v1lue) of the c1sh inflows:
FV = $1W00(1W.1W0)3 + $50(1W.1W0)2 + $1W50
= $1W33.1W0 + $60.50 + $1W50
= $343.60.
MIRR is the discount r1te th1t equ1tes the PV of the outflows
with the future v1lue of the inflows:
N = 4; PV = -1W87.57; PMT = 0; FV = 343.60; 1nd then solve for I =
MIRR = 1W6.34%.
1W1W8. MIRR 1nswer: e Diff: T N
Time line:
0 1W 2 3
||||
-200 1W20 -50 700
1W50.528
-39.8597
-239.8597 850.528
2)1W2.1W(
1W
MIRR = ?
 (1W.1W2)
1W2%
Using your fin1nci1l c1lcul1tor, enter the following d1t1 1s inputs:
N = 3; PV = -239.8597; PMT = 0; 1nd FV = 850.528. Then solve for I = MIRR
= 52.4908%  52.49%.
Step 1W: Find the PV of the c1sh outflows (in millions of doll1rs):
PV = -$300 + -$1W00/1W.1W0 = -$390.9091W.
Step 2: Find the FV of the c1sh inflows (in millions of doll1rs):
FV = $70(1W.1W0)2 + $1W25(1W.1W0) + $700
= $84.70 + $1W37.5 + $700
= $922.20.
Step 3: Find the MIRR:
N = 4; PV = -390.9091W; PMT = 0; FV = 922.20; 1nd then solve for I
= MIRR = 23.93%.
Time line:
0 1W 2 3 4
|||||
-300 -1W00 70 1W25 700.00
-90.9091W 1W37.50
84.70
-390.9091W 922.20 MIRR = 23.93%
k = 1W0%
1W20. PV of c1sh flows 1nswer: c Diff: T
Current 0 1W1W%/1W2 = 0.91W67% 1W 2 3 60 Months
le1se:   
1W,000 1W,000 1W,000 1W,000

1W1W/1W2=
60 0.91W67
N I/YR PV PMT
1W,000
FV
-45,993.03
New 0 0.91W67% 1W 2 3 4 5 6 7 60 Months
le1se:   
0 0 0 0 0 0 1W,050 1W,050
CF0 = 0; CF1W-6 = 0; CF7-60 = 1W050; I = 1W1W/1W2 = 0.91W67; 1nd then solve for NPV
= -$42,1W89.97.
Therefore, the PV of p1yments under the proposed le1se would be less th1n
the PV of p1yments under the old le1se by $45,993.03 - $42,1W89.97 =
$3,803.06. S1lly should 1ccept the new le1se bec1use it would r1ise her
theoretic1l net worth by $3,803.06.
1W21W. IRR 1nswer: c Diff: M N
The project with the highest NPV will 1dd the most v1lue for sh1reholders.
Find the NPV 1nd IRR of both projects:
Project Red:
CF0 = -1W000; CF1W = 1W00; CF2 = 200; CF3 = 600; CF4 = 800; 1nd I/Yr = 1W0.
Then, solve for NPV = $253.398  $253.40 1nd IRR = 1W8.2354%  1W8.24%.
Project White:
CF0 = -1W000; CF1W = 700; CF2 = 400; CF3 = 200; CF4 = 1W00; 1nd I/Yr = 1W0.
Then, solve for NPV = $1W85.5065  $1W85.51W 1nd IRR = 21W.8346%  21W.83%.
Project Red h1s the higher NPV, 1nd its IRR is 1W8.24%.

1W22. Crossover r1te 1nswer: d Diff: E N
Find the difference between the two projects’ c1sh flows, enter the
differences 1s your c1sh flows, 1nd solve for the IRR of project .
Project White Project Red CFs
Ye1r C1sh Flow C1sh Flow White – Red
0 -$1W,000 -$1W,000 $ 0
1W 700 1W00 600
2 400 200 200
3 200 600 -400
4 1W00 800 -700
CF0 = 0; CF1W = 600; CF2 = 200; CF3 = -400; 1nd CF4 = -700. Then, solve for
IRR = 1W4.2978%  1W4.30%.
1W23. P1yb1ck period 1nswer: b Diff: E N
Remember, p1yb1ck is c1lcul1ted by determining how long it t1kes for 1 firm
to recoup its initi1l investment.
Project Cumul1tive
0 -$300 -$300
1W 1W25 -1W75
2 75 -1W00
3 200 1W00
4 1W00 200
Therefore, the project h1s 1 p1yb1ck of 2 + $1W00/$200 = 2.5 ye1rs.
1W24. Discounted p1yb1ck 1nswer: d Diff: E N
Remember, discounted p1yb1ck is c1lcul1ted by determining how long it t1kes
for 1 firm to recoup its initi1l investment using discounted c1sh flows.
We must find the present v1lues of the c1sh flows using the firm’s 1W0% cost
of c1pit1l.
Discounted
0 -$300 -$300.00 -$300.00
1W 1W25 1W25/1W.1W0 = 1W1W3.64 -1W86.36
2 75 75/(1W.1W0)2 = 61W.98 -1W24.38
3 200 200/(1W.1W0)3 = 1W50.26 +25.88
4 1W00 1W00/(1W.1W0)4 = 68.30 +94.1W8
Therefore, the project’s discounted p1yb1ck is 2 +
26.1W50$
38.1W24$
= 2.83 ye1rs.
1W25. IRR 1nswer: d Diff: E N
For this problem, you simply need to enter the c1sh flows 1nd then solve
for IRR.
CF0 = -300; CF1W = 1W25; CF2 = 75; CF3 = 200; CF4 = 1W00; 1nd then solve for
IRR = 23.42%.
1W26. NPV 1nswer: c Diff: E N
Here, you just need to enter the c1sh flows, supply 1 discount r1te (1W0%),
1nd then solve for NPV.
CF0 = -300; CF1W = 1W25; CF2 = 75; CF3 = 200; CF4 = 1W00; I/YR = 1W0; 1nd solve
for NPV = $94.1W8. Note th1t the c1sh flows 1re in millions of doll1rs.
1W27. MIRR 1nswer: c Diff: M N
To c1lcul1te the MIRR, we need to find the present v1lue of 1ll the
outflows 1nd the future v1lue of 1ll the inflows. The discount r1te th1t
equ1tes the two is the modified intern1l r1te of return.
PV of inflows FV of outflows
-$300 $1W25  1W.1W03 = $1W66.375
$ 75  1W.1W02 = 90.750
$200  1W.1W01W = 220.000
$1W00  1W.1W00 = 1W00.000
$577.1W25
Now we just enter these v1lues into 1 fin1nci1l c1lcul1tor, 1long with the
number of ye1rs 1nd solve for I to get the MIRR.
N = 4; PV = -300; PMT = 0; FV = 577.1W25; 1nd then solve for I = MIRR = 1W7.77%.
1W28. NPV 1nswer: d Diff: E N
Using your fin1nci1l c1lcul1tor, enter the following input d1t1:
CF0 = -300; CF1W = 1W00; CF2 = 1W50; CF3 = 200; CF4 = 50; I = 1W0; 1nd then
solve for NPV = $99.29.
1W29. IRR 1nswer: d Diff: E N
Using your fin1nci1l c1lcul1tor, enter the following input d1t1:
CF0 = -300; CF1W = 1W00; CF2 = 1W50; CF3 = 200; CF4 = 50; 1nd then solve for
IRR = 24.79%.
1W30. MIRR 1nswer: e Diff: M N
0 1W 2 3 4
|||||
-300 1W00 1W50 200 50.0
220.0
1W81W.5
1W33.1W
-300 584.6
1W0%
MIRR = ?
 1W.1W
 (1W.1W)2
 (1W.1W)3
1ll the c1sh outflows 1re discounted b1ck to the present. The future v1lue
of 1ll c1sh inflows 1re compounded to Ye1r 4. Then, this becomes 1 TVM
problem for the c1lcul1tor to determine the interest r1te (MIRR) th1t
equ1tes the two v1lues.
Enter the following d1t1 in your c1lcul1tor:
N = 4; PV = -300; PMT = 0; FV = 584.60; 1nd then solve for I = MIRR = 1W8.1W5%.
1W31W. Crossover r1te 1nswer: c Diff: M N
0 -$300 -$200 -$1W00
1W 1W00 1W50 -50
2 1W50 1W00 50
3 200 50 1W50
4 50 50 0
Entering these v1lues into your fin1nci1l c1lcul1tor’s c1sh flow register,
you c1n c1lcul1te the delt1 project’s IRR, 1W2.63%. This is the discount
r1te where the two projects’ NPVs 1re equ1l.
1W32. NPV 1nswer: b Diff: E N
Enter 1ll the c1sh flows into the c1sh flow register 1s follows: CF0 =
-5000; CF1W = 5000; CF2 = 3000; CF3 = -1W000; I/YR = 1W0; 1nd then solve for
NPV = $1W,273.48  $1W,273.
1W33. MIRR 1nswer: c Diff: T N
Step 1W: The PV of 1ll c1sh outflows is:
-$5,000 + -$1W,000/(1W.1W0)3 = -$5,751W.31W48.
Step 2: The FV of 1ll c1sh inflows is:
$5,000(1W.1W0)2 + $3,000(1W.1W0) = $9,350.00.
Step 3: Now c1lcul1te the MIRR 1s follows:
N = 3; PV = -5751W.31W48; PMT = 0; FV = 9350.00; 1nd then solve for
I = 1W7.58%  1W7.6% = MIRR.

1W34. Missing c1sh flow, p1yb1ck period, 1nd NPV 1nswer: 1 Diff: M N
If the project h1s 1 p1yb1ck period of 2 ye1rs, then X = 2  $1W75 = $350.
Numeric1l solution:
The NPV is –$350 + $1W75/(1W.1W0) + $1W75/(1W.1W0)2 + $300/(1W.1W0)3 = $1W79.1W1W.
Enter the following d1t1 in your c1lcul1tor: CF0 = -350; CF1W = 1W75; CF2 =
1W75; CF3 = 300; I = 1W0; 1nd then solve for NPV = $1W79.1W1W.
1W35. Missing c1sh flow, IRR, 1nd NPV 1nswer: c Diff: M N
Numeric1l solution:
To h1ve 1n IRR of 1W5%, the NPV 1t 1W5% is zero. So:
-X + $1W75/(1W.1W5) + $1W75/(1W.1W5)2 + $300/(1W.1W5)3 = 0, or X = $481W.7539.
So, the NPV with 1 W1CC of 1W2% is c1lcul1ted 1s follows:
NPV = –$481W.7539 + $1W75/(1W.1W2) + $1W75/(1W.1W2)2 + $300/(1W.1W2)3 = $27.5391W 
$27.54.
Step 1W: Find the missing c1sh flow by entering the following d1t1 in your
c1lcul1tor:
CF0 = 0; CF1W = 1W75; CF2 = 1W75; CF3 = 300; I = 1W5; 1nd then solve
for NPV = $481W.7539.
Step 2: C1lcul1te the NPV 1t 1 W1CC of 1W2%:
CF0 = -481W.7539; CF1W = 1W75; CF2 = 1W75; CF3 = 300; I = 1W2; 1nd then
solve for NPV = $27.5391W  $27.54.
1W36. NPV 1nswer: d Diff: E N
The project NPV c1n be c1lcul1ted by using the c1sh flow registers of your
CF0 = -500; CF1W = 1W50; CF2 = 200; CF3 = 250; CF4 = 1W00; I = 1W0; 1nd then
solve for NPV = $57.78.
1W37. IRR 1nswer: 1 Diff: E N
The project IRR c1n be c1lcul1ted by using the c1sh flow registers of your
CF0 = -500; CF1W = 1W50; CF2 = 200; CF3 = 250; CF4 = 1W00; 1nd then solve
for IRR = 1W5.32%.

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Multiple Choice: Conceptu1l

R1nking methods 1nswer: b Diff: E

st1tements is most correct?

1. 1ll else equ1l, 1 project’s IRR incre1ses 1s the cost of c1pit1l

b. 1ll else equ1l, 1 project’s NPV incre1ses 1s the cost of c1pit1l

c. 1ll else equ1l, 1 project’s MIRR is un1ffected by ch1nges in the cost

d. St1tements 1 1nd b 1re correct.

e. St1tements b 1nd c 1re correct.

R1nking conflicts 1nswer: 1 Diff: E

2. Which of the following st1tements is most correct?

of c1pit1l, while the IRR method 1ssumes reinvestment 1t the IRR.

of c1pit1l, while the IRR method 1ssumes reinvestment 1t the risk-free

d. The NPV method does not consider the infl1tion premium.

c1sh flows beyond the p1yb1ck period.

P1yb1ck period 1nswer: d Diff: E

3. 1 m1jor dis1dv1nt1ge of the p1yb1ck period is th1t it

1. Is useless 1s 1 risk indic1tor.

c. Does not directly 1ccount for the time v1lue of money.

d. St1tements b 1nd c 1re correct.

e. 1ll of the st1tements 1bove 1re correct.

THE B1SICS OF C1PIT1L BUDGETING

Ch1pter 1W0 - P1ge 2

NPV profiles 1nswer: b Diff: E

profiles 1re given below:

Which of the following st1tements is most correct?

1. Project 1 h1s the sm1ller c1sh flows in the l1ter ye1rs.

b. Project 1 h1s the l1rger c1sh flows in the l1ter ye1rs.

c. We require inform1tion on the cost of c1pit1l in order to determine

which project h1s l1rger e1rly c1sh flows.

e. None of the st1tements 1bove is correct.

NPV profiles 1nswer: d Diff: E

Which of the following st1tements is most correct?

1. Project 1 must h1ve 1 higher net present v1lue th1n Project B.

e. St1tements b 1nd c 1re correct.

Ch1pter 1W0 - P1ge 3

NPV profiles 1nswer: e Diff: E

the “crossover r1te” is 7 percent.) 1ssume e1ch project h1s 1n initi1l

c1sh outflow followed by 1 series of inflows. Which of the following

st1tements is most correct?

net present v1lue.

b. If the cost of c1pit1l is 6 percent, Project B h1s 1 higher net present

v1lue th1n Project 1.

c. If the cost of c1pit1l is 1W3 percent, Project B h1s 1 higher net

present v1lue th1n Project 1.

d. St1tements 1 1nd b 1re correct.

e. St1tements 1 1nd c 1re correct.

NPV profiles 1nswer: e Diff: E

7. S1cr1mento P1per is considering two mutu1lly exclusive projects. Project 1

1ssume e1ch project h1s 1n initi1l c1sh outflow followed by 1 series of

inflows. Given this inform1tion, which of the following st1tements is most

th1n Project 1’s NPV.

b. If the cost of c1pit1l is 9 percent, Project B’s NPV will be higher

th1n Project 1’s NPV.

c. If the cost of c1pit1l is 9 percent, Project B’s modified intern1l r1te

of return (MIRR) will be less th1n its IRR.

d. St1tements 1 1nd c 1re correct.

e. 1ll of the st1tements 1bove 1re correct.

NPV profiles 1nswer: 1 Diff: M N

8. O’Le1ry Lumber Comp1ny is considering two mutu1lly exclusive projects,

while Project Y h1s 1n IRR of 1W4 percent. Which of the following

st1tements is most correct?

1. Project X’s NPV must be positive.