Question

2. True or False. The internal rate of return (IRR) is defined as the discount rate, which causes the net present value of a project to equal zero.

A. True

B. False

7. An investment project has annual cash inflows of $2800, $3700, $5100, and $4300, and a discount rate of 14 %. What is the discounted payback period for these cash flows if the initial cost is $5,200?

A. 0.96 years

B. 1.96 years

C. 2.56 years

D. 2.96 years

8. Firms in early (start-up) stages of their lives are most likely to raise capital through a(n) ________, whereas firms which start to grow rapidly are more likely to raise capital through a(n) _______________.

A. IPO ; SEO

B. SEO; IPO

C. VC ; IPO

D. VC ; SEO

Answer 1

2)

True. IRR is the rate of return actually earned for the project. Therefore, at that rate NPV will be equal to zero.

7)

Year	Cash Flow	Discounted Cash Flow [Cash Flow/(1.14^year)]	Cumulative Cashflow [currecnt cash flow + all previous cashflows]
1	2800	2456.140351	2456.140351
2	3700	2847.029855	5303.170206
3	5100	3442.354733	8745.524939
4	4300	2545.945193	11291.47013
			As Initial Outlay is 5200, it will be recoverd in between year 1 & 2. Therefore, Payback Period will be between 1st and 2nd year.
			Payback Period will be 1 year + proportionate of 2nd year Payback Pariod = 1+[(5200-2456.14)/(5303.17-2456.14)]
			Discounted Payback Period = 1.96 years

8)

IPO is an Initial Public Offer when company goes public. This happens after it ahs been in the business and grown at a good level.

SEO is Seasoned Equity Offering. It is raised by an ALREADY PUBLICLY TRADED company.

VC is Venture Capital. It is raised by a NEW company planning to start a business.

Therefore, VC and IPO