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# Corporate Finance

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## Quiz 7 : Investment Decision Rules

Use the table for the question(s)below. Consider the following two projects with cash flows in $: -The NPV of project A is closest to: Free Multiple Choice Answer: Answer: A The decision you should take regarding this project is: Free Multiple Choice Answer: Answer: D Use the following information to answer the question(s)below. Frank Dewey Esquire from the firm of Dewey,Cheatum,and Howe,has been offered an upfront retainer of$30,000 to provide legal services over the next 12 months to Taggart Transcontinental.In return for this upfront payment,Taggart Transcontinental would have access to 8 hours of legal services from Frank for each of the next 12 months.Frank's normal billable rate is $250 per hour for legal services. -Assuming that Dewey's cost of capital is 12% EAR,then the NPV of his retainer offer is closest to: Free Multiple Choice Answer: Answer: D Use the table for the question(s)below. Consider the following two projects with cash flows in$: -The NPV of project B is closest to:
Multiple Choice
Use the table for the question(s)below. Consider a project with the following cash flows in $: -If the appropriate discount rate for this project is 15%,then the NPV is closest to: Multiple Choice Answer: Use the following information to answer the question(s)below. Frank Dewey Esquire from the firm of Dewey,Cheatum,and Howe,has been offered an upfront retainer of$30,000 to provide legal services over the next 12 months to Taggart Transcontinental.In return for this upfront payment,Taggart Transcontinental would have access to 8 hours of legal services from Frank for each of the next 12 months.Frank's normal billable rate is $250 per hour for legal services. -Assuming that Dewey's cost of capital is 12% EAR,then the IRR of his retainer offer is closest to: Multiple Choice Answer: Use the following information to answer the question(s)below. Sarah Palin reportedly was paid a$11 million advance to write her book Going Rogue.The book took one year to write.In the time she spent writing,Palin could have been paid to give speeches and appear on TV news as a political commentator.Given her popularity,assume that she could have earned $8 million over the year (paid at the end of the year)she spent writing the book. -Assuming that Palin's cost of capital is 10%,then the NPV of her book deal is closest to: Multiple Choice Answer: Use the table for the question(s)below. Consider the following two projects with cash flows in$: -The NPV for project Alpha is closest to:
Multiple Choice
Use the following information to answer the question(s)below. You are considering investing in a start-up project at a cost of $100,000.You expect the project to return$500,000 to you in seven years.Given the risk of this project,your cost of capital is 20%. -The IRR for this project is closest to:
Multiple Choice
Use the information for the question(s)below. Boulderado has come up with a new composite snowboard.Development will take Boulderado four years and cost $250,000 per year,with the first of the four equal investments payable today upon acceptance of the project.Once in production the snowboard is expected to produce annual cash flows of$200,000 each year for 10 years.Boulderado's discount rate is 10%. -The NPV for Boulderado's snowboard project is closest to:
Multiple Choice
Use the information for the question(s)below. Larry the Cucumber has been offered $14 million to star in the lead role of the next three Larry Boy adventure movies.If Larry takes this offer,he will have to forgo acting in other Veggie movies that would pay him$5 million at the end of each of the next three years.Assume Larry's personal cost of capital is 10% per year. -The NPV of Larry's three-movie Larry Boy offer is closest to:
Multiple Choice
Use the following information to answer the question(s)below. You are considering investing in a start-up project at a cost of $100,000.You expect the project to return$500,000 to you in seven years.Given the risk of this project,your cost of capital is 20%. -The NPV for this project is closest to:
Multiple Choice
Use the information for the question(s)below. Boulderado has come up with a new composite snowboard.Development will take Boulderado four years and cost $250,000 per year,with the first of the four equal investments payable today upon acceptance of the project.Once in production the snowboard is expected to produce annual cash flows of$200,000 each year for 10 years.Boulderado's discount rate is 10%. -The NPV profile graphs:
Use the following information to answer the question(s)below. Sarah Palin reportedly was paid a $11 million advance to write her book Going Rogue.The book took one year to write.In the time she spent writing,Palin could have been paid to give speeches and appear on TV news as a political commentator.Given her popularity,assume that she could have earned$8 million over the year (paid at the end of the year)she spent writing the book. -Assume that once her book is finished,it is expected to generate royalties of $5 million in the first year (paid at the end of the year)and these royalties are expected to decrease by 40% per year in perpetuity.Assuming that Palin's cost of capital is 10% and given these royalties payments,the NPV of Palin's book deal is closest to: Multiple Choice Answer: Use the table for the question(s)below. Consider the following two projects with cash flows in$: -The NPV for project Beta is closest to:
Use the following information to answer the question(s)below. Sarah Palin reportedly was paid a $11 million advance to write her book Going Rogue.The book took one year to write.In the time she spent writing,Palin could have been paid to give speeches and appear on TV news as a political commentator.Given her popularity,assume that she could have earned$8 million over the year (paid at the end of the year)she spent writing the book. -The IRR of Palin's book deal is closest to:
Use the information for the question(s)below. The Sisyphean Company is planning on investing in a new project.This will involve the purchase of some new machinery costing $450,000.The Sisyphean Company expects cash inflows from this project as detailed below: The appropriate discount rate for this project is 16%. -The NPV for this project is closest to: Multiple Choice Answer: Which of the following statements is FALSE? Multiple Choice Answer: Which of the following statements is FALSE? Multiple Choice Answer: Use the information for the question(s)below. Boulderado has come up with a new composite snowboard.Development will take Boulderado four years and cost$250,000 per year,with the first of the four equal investments payable today upon acceptance of the project.Once in production the snowboard is expected to produce annual cash flows of \$200,000 each year for 10 years.Boulderado's discount rate is 10%. -The NPV profile: