Quiz: MMI1060 Fall 2022 Quiz 3 - Project Evaluation 10/3/22, 08:21

MMI1060 Fall 2022 Quiz 3 - Project Evaluation

Started: Oct 3 at 8:20a.m.

Quiz Instructions
There are 6 Project Evaluation questions based on the material from Module 3.

Good luck!

Question 1 1 pts

Maxine is considering an investment which will pay out $10,000 at the end of
each year for the next four years. The investment costs $32,000 today. Should
she make this investment, given that the interest rate is 7%?

No because the net present value (NPV) is positive.

Yes, because the net present value (NPV) is positive

No, because the net present value (NPV) is negative

Yes, because the net present value (NPV) is negative.

Question 2 1 pts

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Quiz: MMI1060 Fall 2022 Quiz 3 - Project Evaluation 10/3/22, 08:21

Project Project Project

A B C
Time
-9,000 -9,000 -9,000
0
Time
5,000 3,000 4,000
1
Time
4,000 4,000 3,000
2
Time
3,000 5,000 10,000
3
IRR 17.5% 14.5% 32.7%
NPV
at $1,440 $1,176 $5,214
8%

If a company uses the payback period rule with a cut-off of 2 years to choose
projects, which of the projects will rank highest?

Project B

Project C

Project A

Question 3 1 pts

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Quiz: MMI1060 Fall 2022 Quiz 3 - Project Evaluation 10/3/22, 08:21

Project Project Project

A B C
Time
-9,000 -9,000 -9,000
0
Time
5,000 3,000 4,000
1
Time
4,000 4,000 3,000
2
Time
3,000 5,000 10,000
3
IRR 17.5% 14.5% 32.7%
NPV
at $1,440 $1,176 $5,214
8%

If a company uses the IRR rule to choose projects, which project will rank the
highest?

Project B

Project C

Project A

Question 4 1 pts

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Quiz: MMI1060 Fall 2022 Quiz 3 - Project Evaluation 10/3/22, 08:21

Project Project Project

A B C
Time
-9,000 -9,000 -9,000
0
Time
5,000 3,000 4,000
1
Time
4,000 4,000 3,000
2
Time
3,000 5,000 10,000
3
IRR 17.5% 14.5% 32.7%
NPV
at $1,440 $1,176 $5,214
8%

If a company uses the NPV rule to choose projects, and the appropriate
discount rate is 8%, which project will rank the highest?

Project B

Project C

Project A

Question 5 1 pts

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Quiz: MMI1060 Fall 2022 Quiz 3 - Project Evaluation 10/3/22, 08:21

The owner of a hair salon spends $1,000,000 to renovate its premises,

estimating that this will increase her cash flow by $220,000 per year for 5 years.
She constructs this graph, which shows the net present value (NPV) as a
function of the discount rate. If her discount rate is 6%, should she accept the
project? (Note: The NPV line crosses the x-axis at 3.26%)

Yes, because the NPV is positive at a 6% discount rate.

No, because the NPV is positive at a 6% discount rate.

Yes, because the NPV is negative at a 6% discount rate.

No, because the NPV is negative at a 6% discount rate.

Question 6 1 pts

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Quiz: MMI1060 Fall 2022 Quiz 3 - Project Evaluation 10/3/22, 08:21

A steel company wishes to replace the lighting in its warehouse with an energy
efficient LED system. Installing the new lighting system will cost $1.5 million,
and it is expected to generate a cost savings of $140,000 per year for the next
25 years. If the steel company has a cost of capital of 6%, what is the NPV of
this investment?

$2,000,000

$289,670

$1,789,670

-$1,500,000

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