Quiz Submissions - Test 5

Udendu Abasili (username: y200q)

Attempt 1
Written: Apr 8, 2017 6:02 PM - Apr 8, 2017 6:22 PM
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1 0.08 / 0.08 points

An investor wants to receive $100,000 from a project by the end of the second year. What
is the internal rate of return (IRR) if the investor has to invest $92,000 today?

Question options:

8.7%

2.8%

3.4%

4.3%

2.0%
n2 0.08 / 0.

What projects are called simple investments?

Question options:

Projects that have one inflow at the start, followed by a series of outflows

Projects that have one or more periods of outflows at the start, followed by one or more periods of inflows

Projects that do not require calculation of the approximate external rate of return

Projects that have only two internal rates of return

Projects that have revenues at the start, followed by a stream of operating costs
n3 0.08 / 0.

The internal rate of return (IRR) can be negative if

Question options:

cannot be negative

a project is losing money

a project just breaks even

 a cash inflow exceeds a cash outflow

a project does not break even

n4 0.08 / 0.

If a project is represented by the above presented cash flow diagram, what rate of return
should be used?

Question options:

External rate of return

Market rate of return

Explicit rate of return

Internal rate of return

Minimum acceptable rate of return

n5 0.08 / 0.

The project is represented by the following cash flow diagram:

What rate of return should be used in this case?

Question options:

Explicit rate of return

Minimum acceptable rate of return

 Internal rate of return

Market rate of return

External rate of return

n6 0.08 / 0.

The approximate external rate of return is approximation because

Question options:

all receipts are assumed to be invested at the MARR

all net savings earned by a project are assumed to be invested at the MARR

it can be computed only as a trial ERR

all receipts that occur when the project balance breaks even are assumed to be invested at the M

all receipts that occur when the project balance is negative are assumed to be invested at the M
n7 0.08 / 0.

A project is represented by the following graphs:

 What is the internal rate of return for this project?

Question options:

10%

0%

14%

cannot be determined

4%
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8 0.08 / 0.08 points

Unlike IRR-method, PW-method or AW-method

Question options:

gives a direct measure of the profit provided by a project

is more complicated to apply

accounts for expected service life of a project

does not account for the time value of money

discriminates against long-term projects

n9 0.08 / 0.

What assumption makes the approximate method of finding the external rate of return a
proxy?

Question options:

A project's balance is assumed to be always positive

All receipts of a project are assumed to be invested at a minimum acceptable rate of return
Receipts and disbursements that occur when a project's balance is positive are assumed to be i
minimum acceptable rate of return
All receipts and disbursements of a project are assumed to be invested at a minimum acceptab
Receipts that occur when a project's balance is positive are assumed to be invested at a minim
return
n 10 0.08 / 0.
 A project is represented by the following cash flow diagram:

What is its rate of return?

Question options:

60%

74%

56%

36%

22%
n 11 0.08 / 0.

If there are two mutually exclusive alternatives, then the best one is the one that

Question options:

has a higher internal rate of return assuming the lives of the alternatives are the same

has a higher internal rate of return regardless of the service lives of the alternatives

has incremental investment with the rate of return equal to the minimum acceptable rate of ret

has incremental investment with the rate of return exceeding minimum acceptable rate of retur

has a higher minimum acceptable rate of return assuming the lives of the alternatives are the s
n 12 0.08 / 0.

What is the major disadvantage of the internal rate of return method?

Question options:

It can produce more than one internal rate of return

 It complicates the comparison of projects of the different sizes

It ignores the time value of money

It discriminates against long-term projects

It ignores the expected service life

n 13 0.08 / 0.

As a rule, the approximate ERR is

Question options:

always higher than the precise ERR

equal to either precise ERR or MARR

always lower than the MARR

between the precise ERR and the MARR

always higher than both precise ERR and MARR

n 14 0.08 / 0.

A project does not require initial investment. It costs $4,000 a year from now and earns
$8,000 in two years. What is the project's internal rate of return?

Question options:

100%

75%

141%

50%

24%
n 15 0.08 / 0.

What alternative is the initial base for comparison of mutually exclusive projects?

Question options:

The alternative with the benefit-cost ratio of one

The alternative with zero net benefit

The alternative with the smallest first cost

The "do nothing" alternative

 The alternative with the highest internal rate of return
n 16 0.08 / 0.

Computing a precise external rate of return can be a complex procedure because

Question options:

the calculation process requires much experimenting with trial external rates of return before p
makes the future worth positive
positive balance earned by a project is to be invested outside this project at an unknown minim
return
a project is not typically a simple investment project

of the difficulty in determining exactly when the explicit interest rate should be applied

a project's balance can be negative for the trial external rates of return
n 17 0 / 0.

The following table summarizes information for five project:

The data can be interpreted in the following way: The IRR on the incremental investment
between project 5 and project 4 is 16%.
If the projects are mutually exclusive, which projects should be undertaken if the MARR is
15%?

Question options:

1, 3, 4, and 5

3, 4 and 5

5 only

1 only

3 and 5
n 18 0.08 / 0.

What is the advantage of the internal rate of return method?

Question options:
 It expresses projects in terms of productivity of their investments

It gives an explicit measure of profit

It takes into account the need to have capital recovered quickly

It has familiar meanings to decision makers

It is very easy to calculate and therefore it is commonly used

n 19 0 / 0.

A project requires $100,000 in initial investment and immediately pays $25,000. The next
year this project requires additional investment of $50,000 and does not pay anything. In
two year the project pays $150,000. The internal rate of return (i) for this project can be
obtained by

Question options:

solving a system of two equations.

using a present worth factor.

solving the ith degree polynomial equation.

solving a quadratic equation.

calculating an external rate of return.

n 20 0 / 0.

What economic concept is used to introduce the external rate of return?

Question options:

Sunk cost

Marginal rate of return

Internal rate of return

Opportunity cost

Time value of money

n 21 0.08 / 0.
 The following table summarizes information for five projects:

The data can be interpreted in the following way: The IRR on the incremental investment
between project 5 and project 4 is 16%.
If all projects are independent, which projects should be undertaken if the MARR is 16%?

Question options:

1, 2, 3, 4 and 5

1, 3, 4 and 5

1, 3 and 5

2 and 4

only 2
n 22 0.08 / 0.

The internal rate of return (IRR) is

Question options:

interest rate that ensures positive net cash flow of a project.

interest rate that allows an investor to recoup the initial investment in five years.

interest rate that measures the return from engineering investment.

interest rate that is set up by an investor to guarantee that the return on investment will be hig
account.
interest rate that breaks even a project's costs and benefits.
n 23 0.08 / 0.

External rate of return (ERR) should be used whenever

Question options:

a project starts with a cash outflow.

it is impossible to calculate the minimum acceptable rate of return.

a project is a simple investment.

 a project requires multiple investments followed by multiple receipts.

evaluation of a project produces more than one internal rate of return.

n 24 0.08 / 0.

What mathematical equation describes the concept of the internal rate of return if

Rt = the cash flow of receipts in period t

Dt = the cash flow of disbursements in period t
T = the number of time periods

Question options:

n 25 0.08 / 0.

What is the difference between the internal rate of return and the external rate of return?

Question options:

The internal rate of return is earned by a project whereas the external rate of return is earned outside
 The internal rate of return is usually equals the minimum acceptable rate of return whereas the extern
higher than the minimum acceptable rate of return
The external rate of return equals the difference between the internal rate of return and the minimum
For a given explicit rate of return, a project can have more than one value for its external rate of retur
of its internal rate of return
The external rate of return is earned when a project's return is used for the purpose of further reinves
of return is typically used for calculating the net return of a project

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