Question

Jack is considering to purchase a heavy duty grill for his restaurant. Estimated total investment is $100,000, and below stream of net cash flow is expected for the next five years. If fair discount rate is 8%, what should be Jack’s decision?

             |------------|------------|------------|------------|------------|

             0                 1                2                3                4                5

-$100,000       $10,000     20,000      30,000      30,000        30,000

1. If fair discount rate is 8%, what should be Jack’s decision based on the Net Present Value?

		A. Purchase since NPV is greater than zero
		B. Do not purchase since NPV is less than zero.
		C. Do not purchase since NPV is exactly zero
		D. Purchase since NPV is exactly zero.

Jack is considering to purchase a heavy duty grill for his restaurant. Estimated total investment is $100,000, and below stream of net cash flow is expected for the next five years.

             |------------|------------|------------|------------|------------|

             0                 1                2                3                4                5

-$100,000       $10,000     20,000      30,000      30,000        30,000

2. Internal Rate of Return (IRR) is:

		A. 4%
		B. 6%
		C. 8%
		D. Cannot calculate. Does not have enough information.

3. Susan is evaluating two mutually exclusive capital projects. She determines that both are acceptable. Based on this information, which of the following statements is incorrect?

		A. Both projects have net present values that are greater than zero.
		B. The projects’ internal rates of return must be greater than the firm’s required rate of return.
		C. Both projects should be purchased.
		D. if the firm purchases either project, the value of the firm is expected to increase.

Answer 1

2. IRR :