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Project 1 requires an initial investment on $50,000 and has an internal rate of return (IRR) of 18%. A mutually exclusive alternative, Project 2, requires an investment of $70,000 and has an IRR of 23%. Which of the following statement is true concerning the rate on the incremental $20,000 investment?

a) it is less than 18%

b) it is between 18 and 23%

c) it is greater than 23%

d) it cannont be determined from the data given

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Darryn D'Souza
Darryn D'SouzaLv10
21 Feb 2021

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Related questions

Final Finishing is considering three mutually exclusive alternatives for a new polisher. Each alternative has an expected life of 10 years and no salvage value. Polisher 1 requires an initial investment of $20,000 and provides annual benefits of $4,465. Polisher 2 requires an initial investment of $10,000 and provides annual benefits of $1,770. Polisher 3 requires an initial investment of $15,000 and provides annual benefits of $3,580. MARR is 15%/year.

Show the comparisons and internal rates of return used to make your decision:

Based on an internal rate of return analysis, which polisher should be recommended?

17) A $50,000 municipal bond has an interest rate of 6% per year, compounded semiannually. The bond will mature in 10 years. If the market interest rate is 8% per year compounded semiannually, a person purchasing the bond should be willing to pay:

a. An amount less than $50,000

b. $50,000

c. An amount greater than $50,000

d. The amount cannot be determined from the information provided

18) Two mutually exclusive alternatives, A and B, are to be evaluated by the ROR method. The initial investment for alternative B is greater than that of alternative A. If the overall ROR of both alternatives A, and B, is greater than the MARR, then:

a. Select alternative A because it has a lower initial investment cost.

b. Select alternative B because it has a higher initial investment cost.

c. Conduct an incremental analysis and select A if the ROR of the increment exceeds the MARR

d. Conduct an incremental analysis and select B if the ROR on the increment exceeds the MARR.

19) A person purchases a $5,000, 5% per year bond, with interest payable semiannually, for the amount of $4,000. The bond has a maturity date of 14 years from now. The equation for calculating how much the person must sell the bond for 6 years from now in order to make a rate of return of 12% per year, compounded semiannually, is:

a. 0 = 4,000 + 125(P/A,6%,12) + x(P/F,6%,12)

b. 0 = 4,000 + 100(P/A,6%,12) + x(P/F,6%,12)

c. 0 = 5,000 + 125(P/A,6%,12) + x(P/F,6%,12)

d. 0 = 4,000 + 125(P/A,12%,6) + x(P/F,12%,6)

20) How much must you deposit in your retirement account each year for 10 years starting now (i.e., years 0 through 9) if you want to be able to withdraw $50,000 per year forever beginning 30 years from now? Assume the account earns interest at 10% per year.

a. $4,239

b. $4,662

c. $4,974

d. $5,471

The following are all True and False Questions:

1. Book Value represents the remaining underpreciated investment on the books after the depreciation charges to date have been subtracted

2. For the same interest rate, compounding interest does not always yield a larger future worth value than a simple interest rate

3. For any project, if its present worth is negative, the project will be rejected

4. The capatalized cost of a finite-life alternative can be obtained by calculating its annual worth over one life cycle and then multiplying by the interest rate

5. The depreciation amount is not directly included in CFBT (Cash Flow Before Tax), but depreciation is directly invlolved in the taxable calculation

6. Using incremental analysis of alternatives, the alternatice with the highest B/C ratio is selected.

7. Plotting PW vs i can be used to determine the IRR for a given project.

8. In conducting an incremental analysis, at any round, two alternatives can be compared and the alternative with the highest internal rate of return can be selected for comparison in the next round.

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