FINS 1613
Tutorial Questions
1
SCHOOL OF BANKING AND FINANCE
FINS1613 BUSINESS FINANCE
Semester 2, 2011
TUTORIAL QUESTIONS
WEEK 6 –Capital Budgeting Applications I
Please note that some answers are exact when rounded to 2 or 3 decimal places because of the use
of PV tables rather than calculators.
Multiplechoice Questions
1. Project A and Project B are mutually exclusive projects with equal risk. Project A has an internal
rate of return of 12%, while Project B has an internal rate of return of 15%.
The two projects have
the same net present value when the discount rate is 7%.
(In other words, the "crossover rate" is
7%.)
Assume each project has an initial cash outflow followed by a series of inflows.
Which of the
following statements is most correct?
a. If the discount rate is 10%, each project will have a positive NPV.
b. If the discount rate is 6%, Project B has a higher NPV than Project A.
c. If the discount rate is 13%, Project B has a higher NPV than Project A.
d. Statements a and b are correct.
e. Statements a and c are correct.
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 One '11
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 Net Present Value, Internal rate of return

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