Capital Budgeting

If the net present value of project A is +$50, and of project B is +$80, then the NPV of the combined project is:

• $30

• $50

• $80

• $130

If the NPV of project A is +$80, and that of project B is -$40, and that of project C is +$20, what is the NPV of the combined project?

• $100

• -$40

• $60

• $20

Given the following cash flow for the startup “Healthy Life”: C0=-2000, C1=+500, C2=+700, C3=+1200, C4=+1500, C5=$3000 calculate the NPV of the startup using a 10% discount rate.

• $2822

• $2102

• $2566

• $6822

Which one of the following will increase the NPV of a project?

• An increase in the discount rate.

• Increasing the amount of the initial cash outflow

• Decreasing the amount of each cash inflow

• A decrease in the discount rate

Payback period rule accepts all projects for which the payback period is:

• Greater than the cut-off value.

• Less than the cut-off value.

• Positive

• An integer

The advantage of the payback period is :

• Adjustment for uncertainty of early CF

• It is simple to calculate and use

• Does not discount CF

• None of the above

The discount rate that makes the net present value of an investment exactly equal to zero is called the:

• Internal rate of return

• External rate of return

• WACC

• Average rate of return

What is the internal rate of return on an investment with the following cash flows?

• 8.00%

• 8.93%

• 10.00%

• 10.45%