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WorksheetsGroup 8
Total questions: 10
Worksheet time: 6mins
How many evaluation criteria are there for investment projects?
5
6
7
8
Which of the following is NOT one of the advantages of payback periods?
Need detailed analysis.
Simple to calculate and understand.
Adjusts for uncertainty of later cash flows.
Biased towards liquidity.
The developer indicates that net operating income will be $2,150,000 per year, and the lender notes that debt service will be $350,000 per year. The DSCR is:
6.14
5.14
6.3
0.16
A business is considering a project that has an initial investment of $250,000 and forecasts it would generate revenue of $70,000 per year. The ARR is:
30%
28%
3.57
4.2
The debt-service coverage ratio (DSCR) is a measure of the cash flow available to pay current debt obligations.
FALSE
TRUE
What is the definition of IRR?
The net monetary gain (or loss) from a project, computed by discounting all present and future cash inflows and outflows related to the project.
A series of cash flows of equal amounts in each period of the total planning period.
The rate that leads to a NPV of zero when applied as the uniform discount rate.
The period after which the capital invested has been recovered by the discounted net cash inflows from the project.
Which of the following is correct about BCR (benefit-cost analysis)?
BCR indicates the project’s size or provides a specific value on what the asset / project will generate.
BCR exceeding one indicates that the asset / project is expected to generate incremental value.
BCR equal 1 indicates that the project is destroying value and should not be undertaken.
BCR = PV of benefit expected from the project * PV of the cost of the project
You have three mutually exclusive projects: A, B, and C. They have NPVs of +$50, -$20 and +$100, respectively. What should you do?
Accept A
Accept B
Accept C
Accept A & C
Werney Company is considering investing in a new project. The project will need an initial investment of $1,200,000 and will generate $600,000 (after-tax) cash flows for three years. Calculate the NPV for the project if the cost of capital is 15%.
$169,935
$292,110
$600,000
$258,460
What is the biggest problem of using IRR?
For non-isolated investment projects, several internal rates of return may exist.
Reinvestment Assumption.
For an isolated investment project, only one positive internal rate of return exists.
Multiple IRRs for non-conventional project.
