Question

A graph of the firm’s investment opportunities ranked in order of the projects’: a. discounted payback b. internal rate of return c. net present value d. payback Answer?

Answer #1

**A graph of the firm’s investment opportunities ranked in
order of the projects internal rate of return.**

**Answer: Internal Rate of Return**

**Internal Rate of Return (IRR) is the rate of interest
that makes the sum of all cash flows zero and is useful to compare
one investment to another. The internal rate of return on an
investment or project is the "annualized effective compounded
return rate. It is used in capital budgeting to estimate the
profitability of potential investments.**

The management of Revco Products is exploring four different
investment opportunities. Information on the four projects under
study follows:
Project Number
1
2
3
4
Investment required
$
(570,000
)
$
(500,000
)
$
(370,000
)
$
(340,000
)
Present value of cash inflows at a 11% discount rate
603,219
584,233
385,015
366,546
Net present value
$
33,219
$
84,233
$
15,015
$
26,546
Life of the project
6 years
12 years
6 years
3 years
Internal rate of return...

Rossiter Restaurants is evaluating several new projects. Applying
the discounted payback decision rule to all projects may cause:
A) some positive net present value projects to be
rejected
B) some projects to be accepted which would otherwise be
rejected under the payback rule
C) Projects to be incorrectly accepted due to ignoring the
time value of money
D) The most liquid projects to be rejected in favor of less
liquid projects.
E) a firm to become more long-term focused.

Which is the best technique for decision?
1. payback period
2. Discounted payback period
3. Net present value
4. profitability index
5. Internal rate of return

The management of Revco Products is exploring four different
investment opportunities. Information on the four projects under
study follows:
Project Number
1
2
3
4
Investment required
$
(550,000
)
$
(500,000
)
$
(400,000
)
$
(520,000
)
Present value of cash inflows at a 11% discount
rate
617,520
664,110
463,140
628,320
Net
present value
$
67,520
$
164,110
$
63,140
$
108,320
Life
of the project
8 years
16 years
8 years
5 years
Internal rate of...

The management of Revco Products is exploring four different
investment opportunities. Information on the four projects under
study follows:
Project Number
1
2
3
4
Investment required
$
(560,000
)
$
(510,000
)
$
(410,000
)
$
(350,000
)
Present value of cash inflows at
a 11% discount rate
592,636
577,822
452,691
440,021
Net present value
$
32,636
$
67,822
$
42,691
$
90,021
Life of the project
6 years
12 years
6 years
3 years
Internal rate of return...

The management of Revco Products is exploring four different
investment opportunities. Information on the four projects under
study follows:
Project Number
1
2
3
4
Investment required
$
(450,000
)
$
(540,000
)
$
(390,000
)
$
(340,000
)
Present value of cash inflows at
a 8% discount rate
549,775
715,947
416,102
399,353
Net present value
$
99,775
$
175,947
$
26,102
$
59,353
Life of the project
6 years
12 years
6 years
3 years
Internal rate of return...

Calculate the discounted payback, net present value, and
internal rate of return for the following cash flows. -60, -50, 6,
45, 60, 70, 60, 45, 20. Discount rate at 10%. Please show work for
the internal rate of return calculation.

The discounted payback rule may cause:
Both some positive net present value projects to be rejected;
and some projects with negative net present values to be
accepted.
projects to be incorrectly accepted due to ignoring the time
value of money.
some positive net present value projects to be rejected. some
projects with negative net present values to be accepted.
the most liquid projects to be rejected in favor of less liquid
projects.

11.
The discount rate that makes the net present value of an
investment exactly equal to zero is the:
A)
Payback period.
B)
Internal rate of return.
C)
Average accounting return.
D)
Profitability index.
E)
Discounted payback period.
12.
The internal rate of return (IRR) rule can be best stated
as:
A)
An investment is acceptable if its IRR is exactly equal to its
net present value (NPV).
B)
An investment is acceptable if its IRR is exactly equal to...

art Three
Present Value Index
When funds for capital investments are limited, projects can be
ranked using a present value index. A project with a negative net
present value will have a present value index below 1.0. Also, it
is important to note that a project with the largest net present
value may, in fact, return a lower present value per dollar
invested.
Let's look at an example of how to determine the present value
index.
The company has a...

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