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Which of the following statements about these investments is true?A)The investor should take investment A since it has a greater net present value (NPV).B)The investor should take investment A since it has a greater internal rate of return(IRR).C)The investor should take investment B since it has a greater net present value (NPV).D)The investor should take investment B since it has a greater internal rate of return(IRR).Answer: CExplanation: C) Using a financial calculator, NPV(A) = -$0.002 million, IRR(A) =8.896%, NPV(B) = $0.027, IRR(B) = 10.652%;Use NPV to decide mutually exclusive projects.
(23) Mary is in contract negotiations with a publishing house for her new novel. She hastwo options. She may be paid $100,000 up front, and receive royalties that are expected tototal$26,000 at the end of each of the next five years. Alternatively, she can receive $200,000 upfront and no royalties. According to the NPV rule, which of the two deals should she choose,given a discount rate of 8%?
(24) A project has the following expected cash flows:Project AYear 0-$35,000Year 1$0Year 2$11,000Year 3$13,500Year 4$13,500Year 5$2,500Which of the following investment rules would indicate that she should take the former deal,given a discount rate of 8%?Rule I: The Net Present Value ruleRule II: The Payback Rule with a payback deadline of 4 yearsRule III: The internal rate of return (IRR) Rule
B) Rule II onlyC) Rule III onlyD) Rule I and IIIAnswer: BExplanation: A) Using a financial calculator, enterCF0 = -35000, CF1 = 0, CF2 = 11000, CF3 = 13500, CF4 = 13500, CF5 = 2500; calculateIRR = 4.72%and NPV (for I = 8%) = - $3,228.18. Both indicate the project to be value-diminishing. Payback rule: It takes less than 4 years to recover the initial $35,000, so acceptit.(25)Project AProject BTime 0-10,000-10,000Time 15,0004,000Time 24,0003,000Time 33,00010,000If WiseGuy Inc is choosing one of the above mutually exclusive projects (Project A or ProjectB), given a discount rate of 8%, which should the company choose?

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Term
Summer
Professor
Mais

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