Question

True or false. If your answer is false, you must justify your answer with a one sentence explanation to receive any credit.

8. An asset depreciated in the 3-years MACRS class will have book value of 0 at the end of 3 years.

8. The discounted payback period will always be no shorter than the undiscounted payback period.

9. If the internal rate of return on an investment is positive, then the investment’s net present value must be positive.

11. You are purchasing a machine at $1 million today for a three-year project. At the end of Year 3, you will sell the asset at $800,000. The salvage value will for sure be higher than the market value (of $800,000).

12. If we are comparing two investments, the investment with the higher IRR will have the higher NPV.

Answer 1

An asset depreciated in the 3-years MACRS class will have book value of 0 at the end of 3 years.

False: - (The value will be zero at the end of year 4)

The discounted payback period will always be no shorter than the undiscounted payback period.

True

If the internal rate of return on an investment is positive, then the investment’s net present value must be positive.

False: ( If IRR >= cost of capital only then NPV will be positive)

You are purchasing a machine at $1 million today for a three-year project. At the end of Year 3, you will sell the asset at $800,000. The salvage value will for sure be higher than the market value (of $800,000).

False ( it can be low as it is estimated on the first year)

12. If we are comparing two investments, the investment with the higher IRR will have the higher NPV.

False ( It is not compulosry in every case )