MidtermIISample

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1. You are analyzing the following two mutually exclusive projects and have developed the following information. What is the crossover rate? A. 6.02 percent B. 7.23 percent C. 10.92 percent D. 12.21 percent E. 14.47 percent 2. Jeff is considering a project which will produce cash inflows of \$1,500 a year for 6 years. The project has a 10 percent required rate of return and an initial cost of \$6,200. What is the discounted payback period? A. 4.55 years B. 4.61 years C. 5.55 years D. 5.61 years E. never 3. You are considering two mutually exclusive projects with the following cash flows. Which project(s) should you accept if the discount rate is 7 percent? What if the discount rate is 10 percent? A. accept project A as it always has the higher NPV B. accept project B as it always has the higher NPV C. accept A at 7 percent and B at 10 percent D. accept B at 7 percent and A at 10 percent E. accept A at 7 percent and neither at 10 percent.
4. The advantages of the payback method of project analysis include the: I. application of a discount rate to each separate cash flow. II. bias towards liquidity. III. ease of use. IV. arbitrary cutoff point. A. I and II only B. I and III only C. II and III only D. II and IV only E. II, III, and IV only 5. Wiley Electric just purchased some MACRS 5-year property at a cost of \$118,000. Which one of the following will correctly give you the book value of this equipment at the end of year 3? A. \$118,000 / (1 + .20 + .32 + .192) B. \$118,000 (1 .20 .32 .192) C. \$118,000 (.20 + .32 + .192) D. {[\$118,000 (1 .20)] (1 .32)} (1 .192) E. \$118,000 /{[(1.20 / 1.32)] / 1.192} 6. McLain, Inc. currently produces boat sails and is considering expanding its operations to include awnings for homes and travel trailers. The company owns land beside its current manufacturing facility that could be used for

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