IEE1115 Quiz 7/13

The relevant discount rate is 14 percent for a project with cash flows of −$9,000, $4,600, $3,300, and $3,800 for Years 0 to 3, respectively. What is the payback period (not the discounted payback period)?

• 2.10 years

• 2.29 years

• 2.34 years

• 2.47 years

• 
  2.86 years

A firm evaluates all of its projects by applying the IRR rule. The current proposed project has cash flows of −$37,048, $16,850, $15,700, and $19,300 for Years 0 to 3, respectively. The required return is 18 percent. What is the project IRR? Should the project be accepted or rejected?

• 18.42 percent; accept

• 16.05 percent; accept

• 16.05 percent; reject

• 18.42 percent; reject

• 21.08 percent; accept

Which of the following statements is false?

• The NPV will be positive if the IRR is less than the required rate of return.

• If the multiple IRR problem does not exist, any independent project acceptable by the NPV method will also be acceptable by the IRR method.

• When IRR = r (the required rate of return), NPV = 0.

• The IRR can be positive even if the NPV is negative.

• The NPV method is not affected by the multiple IRR problem.

Hardy Lumber has a capital structure that includes bonds, preferred stock, and common stock. Which of the following rights has most likely been granted to the preferred shareholders?

I. right to share in company profits prior to other shareholders

II. right to elect the corporate directors

III. right to vote on proposed mergers

IV. right to all residual income after the common dividends have been paid

• 
  I only

• I and III only

• I and IV only

• II, III, and IV only

• I, II, III, and IV

Three Corners Markets just paid an annual dividend of $1.40 a share. Today, the company announced that future dividends will be increasing by 1.5 percent annually. If you require a return of 15 percent, how much are you willing to pay to purchase one share of this stock today?

• $11.23

• $10.53

• $10.68

• 
  $9.68

• $11.57