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Question 37  IRR

If a project's net present value (NPV) is zero, then its internal rate of return (IRR) will be:



Question 48  IRR, NPV, bond pricing, premium par and discount bonds, market efficiency

The theory of fixed interest bond pricing is an application of the theory of Net Present Value (NPV). Also, a 'fairly priced' asset is not over- or under-priced. Buying or selling a fairly priced asset has an NPV of zero.

Considering this, which of the following statements is NOT correct?



Question 52  IRR, pay back period

A three year project's NPV is negative. The cash flows of the project include a negative cash flow at the very start and positive cash flows over its short life. The required return of the project is 10% pa. Select the most correct statement.



Question 126  IRR

What is the Internal Rate of Return (IRR) of the project detailed in the table below?

Assume that the cash flows shown in the table are paid all at once at the given point in time. All answers are given as effective annual rates.

Project Cash Flows
Time (yrs) Cash flow ($)
0 -100
1 0
2 121
 



Question 140  IRR, NPV, profitability index

A project has an internal rate of return (IRR) which is greater than its required return. Select the most correct statement.



Question 167  NPV, IRR

A project's net present value (NPV) is negative. Select the most correct statement.



Question 182  NPV, IRR, pay back period

A project's NPV is positive. Select the most correct statement:



Question 189  IRR

A project has the following cash flows:

Project Cash Flows
Time (yrs) Cash flow ($)
0 -400
1 0
2 500
 

The required return on the project is 10%, given as an effective annual rate.

What is the Internal Rate of Return (IRR) of this project? The following choices are effective annual rates. Assume that the cash flows shown in the table are paid all at once at the given point in time.



Question 191  NPV, IRR, profitability index, pay back period

A project's Profitability Index (PI) is less than 1. Select the most correct statement:



Question 218  NPV, IRR, profitability index, average accounting return

Which of the following statements is NOT correct?



Question 489  NPV, IRR, pay back period, DDM

A firm is considering a business project which costs $11m now and is expected to pay a constant $1m at the end of every year forever.

Assume that the initial $11m cost is funded using the firm's existing cash so no new equity or debt will be raised. The cost of capital is 10% pa.

Which of the following statements about net present value (NPV), internal rate of return (IRR) and payback period is NOT correct?



Question 496  NPV, IRR, pay back period

A firm is considering a business project which costs $10m now and is expected to pay a single cash flow of $12.1m in two years.

Assume that the initial $10m cost is funded using the firm's existing cash so no new equity or debt will be raised. The cost of capital is 10% pa.

Which of the following statements about net present value (NPV), internal rate of return (IRR) and payback period is NOT correct?



Question 500  NPV, IRR

The below graph shows a project's net present value (NPV) against its annual discount rate.

For what discount rate or range of discount rates would you accept and commence the project?

All answer choices are given as approximations from reading off the graph.



Question 501  NPV, IRR, pay back period

The below graph shows a project's net present value (NPV) against its annual discount rate.

Which of the following statements is NOT correct?



Question 502  NPV, IRR, mutually exclusive projects

An investor owns an empty block of land that has local government approval to be developed into a petrol station, car wash or car park. The council will only allow a single development so the projects are mutually exclusive.

All of the development projects have the same risk and the required return of each is 10% pa. Each project has an immediate cost and once construction is finished in one year the land and development will be sold. The table below shows the estimated costs payable now, expected sale prices in one year and the internal rates of returns (IRR's).

Mutually Exclusive Projects
Project Cost
now ($)
Sale price in
one year ($)
IRR
(% pa)
Petrol station 9,000,000 11,000,000 22.22
Car wash 800,000 1,100,000 37.50
Car park 70,000 110,000 57.14
 

Which project should the investor accept?



Question 532  mutually exclusive projects, NPV, IRR

An investor owns a whole level of an old office building which is currently worth $1 million. There are three mutually exclusive projects that can be started by the investor. The office building level can be:

  • Rented out to a tenant for one year at $0.1m paid immediately, and then sold for $0.99m in one year.
  • Refurbished into more modern commercial office rooms at a cost of $1m now, and then sold for $2.4m when the refurbishment is finished in one year.
  • Converted into residential apartments at a cost of $2m now, and then sold for $3.4m when the conversion is finished in one year.

All of the development projects have the same risk so the required return of each is 10% pa. The table below shows the estimated cash flows and internal rates of returns (IRR's).

Mutually Exclusive Projects
Project Cash flow
now ($)
Cash flow in
one year ($)
IRR
(% pa)
Rent then sell as is -900,000 990,000 10
Refurbishment into modern offices -2,000,000 2,400,000 20
Conversion into residential apartments -3,000,000 3,400,000 13.33
 

Which project should the investor accept?



Question 542  price gains and returns over time, IRR, NPV, income and capital returns, effective return

For an asset price to double every 10 years, what must be the expected future capital return, given as an effective annual rate?



Question 543  price gains and returns over time, IRR, NPV, income and capital returns, effective return

For an asset price to triple every 5 years, what must be the expected future capital return, given as an effective annual rate?



Question 752  IRR, NPV

All other things remaining equal, a project is worse if its:



Question 781  NPV, IRR, pay back period

You're considering a business project which costs $11m now and is expected to pay a single cash flow of $11m in one year. So you pay $11m now, then one year later you receive $11m.

Assume that the initial $11m cost is funded using the your firm's existing cash so no new equity or debt will be raised. The cost of capital is 10% pa.

Which of the following statements about the net present value (NPV), internal rate of return (IRR) and payback period is NOT correct?



Question 915  price gains and returns over time, IRR, NPV, income and capital returns, effective return

For a share price to double over 7 years, what must its capital return be as an effective annual rate?



Question 936  CAPM, WACC, IRR

You work for XYZ company and you’ve been asked to evaluate a new project which has double the systematic risk of the company’s other projects.

You use the Capital Asset Pricing Model (CAPM) formula and input the treasury yield ##(r_f )##, market risk premium ##(r_m-r_f )## and the company’s asset beta risk factor ##(\beta_{XYZ} )## into the CAPM formula which outputs a return.

This return that you’ve just found is:



Question 1064  NPV, IRR, payback period

Your 18 year old friend is considering what to do with their working life until they retire at age 65. They've sought your advice.

For simplicity, ignore taxes and assume that wages will be paid annually in arrears and will be constant (zero growth). The abbreviation 'k' (Greek kilo) means thousands, so 1k is 1000.

Let the present be time zero (t=0) and the year that you retire be time 47 (t=47).

Your friend is deciding between working as a:

  • Builder's apprentice for 2 years earning $20k pa (2 payments from t=1 to t=2 inclusive), then beginning work as a builder for $90k pa (45 annual payments from t=3 to 47 inclusive);
  • Retail shop salesperson for $50k pa (47 payments from t=1 to t=47 inclusive).

You estimate that the required return is 5% pa with either career, and that they're equally risky. The cashflows are shown below:

Career Choices and Cash Flows
Time Builder Retailer
0 0 0
1 20 50
2 20 50
3 90 50
4 90 50
... ... ...
47 90 50
 

 

Which of the following statements is NOT correct? Comparing the two alternatives, being a builder compared to a retail salesperson, the:



Question 1065  NPV, IRR, payback period

Your 18 year old friend is considering what to do with their working life until they retire at age 65. They've sought your advice.

For simplicity, ignore taxes and assume that wages will be paid annually in arrears and will be constant (zero growth). The abbreviation 'k' (Greek kilo) means thousands, so 1k is 1000.

Let the present be time zero (t=0) and the year of retirement is time 47 (t=47).

Your friend is deciding between:

  • Studying at university for 3 years, costing $30k at the start of each year (3 cash outflows at t=0, 1 & 2), then beginning work as a financial planner for $100k pa (44 annual payments from t=4 to 47 inclusive);
  • Working as a builder's apprentice for 2 years, earning $20k pa (2 cash inflows at t=1 and t=2), then beginning work as a builder for $90k pa (45 annual payments from t=3 to 47 inclusive);

You estimate that the required return is 5% pa with either career, and that they're equally risky. The cashflows are shown below:

Career Choices and Cash Flows
Time Planner Builder
0 -30 0
1 -30 20
2 -30 20
3 0 90
4 100 90
... ... ...
47 100 90
 

 

Which of the following statements is NOT correct? Comparing the two alternatives, being a financial planner compared to a builder, the:



Question 1067  DDM, IRR

Find the internal rate of return (IRR) of buying a $100 stock now that's expected to pay annual dividends forever, with the next $8 dividend to be paid in one year (t=1). The dividend is expected to grow forever at 3% per annum . Therefore the second dividend (paid at t=2) is expected to be $8.24 (=(8*(1+0.03)^1). The IRR of buying this stock now is: