Question

1. Which of the following do you need to know to calculate NPV?

A.) Amount and timing of future cashflows

B.) Appropriate discount rate

C.) Initial Costs

D.) All of the above

2. Which of the following projects should a company take on? A.) Building a warehouse with an NPV of $630 million B.)Building an office with an NPV of $0 C.) Building a helipad with an NPV of -$15 million
3.) What is the minimum acceptance criteria for the IRR? A.)IRR ≥  NPV B.)IRR ≥ required return C.)IRR < NPV D.) IRR < required return

Answer 1

1.

Correct option is > D.) All of the above

To get NPV discount rate is used to discount the future cash flow and initial cost is subtracted from that hence, we require all above to calculate NPV.

2.

Correct option is > A.) Building a warehouse with an NPV of $630 million

Highest NPV is acceptable by company. The highest NPV is only desired for taking up the project.

3.

Correct option is > B.) IRR ≥ required return

The IRR is rate where overall cashflow of the project is equal to ZERO.

Required rate should be less the IRR so that NPV is positive or at least Zero.