Project Black Swan requires an initial investment of $115,000. It has positive cash flows of $140,000 for each of the next two years. Because of major demolition and environmental clean-up costs, cash flow for the third and final year of the project is $(170,000). If the company 's required rate of return is 12%, the project should be
A) rejected because the IRR is less than 12%.
B) accepted because the NPV is positive at 12%.
C) the project is unacceptable at any discount rate.
D) rejected because there may be more than one IRR.
Project Black Swan requires an initial investment of $115,000. It has positive cash flows of $140,000 for each of the next two years. Because of major demolition and environmental clean-up costs, cash flow for the third and final year of the project is $(170,000).
A) All possible IRR's for this project are negative.
B) It is not possible to compute an IRR for this project.
C) The project is unacceptable at any required rate of return.
D) This project might have more than one IRR.
Compute the payback period for a project with the following cash flows, if the company's discount rate is 12%.
Initial outlay = $450
Cash flows: Year 1 = $325
Year 2 = $65
Year 3 = $100
A) 3.43 years
B) 3.17 years
C) 2.88 years
D) 2.6 years
Project Black Swan requires an initial investment of $115,000. It has positive cash flows of $140,000 for each of the next two years. Because of major demolition and environmental clean-up costs, cash flow for the third and final year of the project is $(170,000).
A) All possible IRR's for this project are negative.
B) It is not possible to compute an IRR for this project.
C) This project might have more than one IRR, but only one MIRR.
D) The project is unacceptable at any required rate of return. This project might have more than one IRR.
Project Black Swan requires an initial investment of $115,000. It has positive cash flows of $140,000 for each of the next two years. Because of major demolition and environmental clean-up costs, cash flow for the third and final year of the project is $(170,000). The company accepts all projects with a payback period of 2 years or less.
A) The payback rule would reject this project because of its risks are too high.
B) The payback rule would reject this project because all negative cash flows are added together.
C) If strictly applied, the payback rule would reject this project.
D) If strictly applied, the payback rule would accept this project.
Consider a project with the following cash flows:
After-Tax After-Tax
Accounting Cash Flow
Year Profits from Operations
1 $799 $750
2 $150 $1,000
3 $200 $1,200
Initial outlay = $1,500
Terminal cash flow = 0
Compute the profitability index if the company's discount rate is 10%.
A) 15.8
B) 1.61
C) 1.81
D) 0.62
