Question

please answer all questions:

1-independent projects:

a) dont compete with each other

b)do compete with each other

c) can be mutually exclusive under certain condition

d) always have negative NPVs

2- the hurdle rate is:

a) the number of years required to get the initial investment in the payback period

b) the IRR

c)the NPV

d) the required rate of return

3- you get a 25 year loan of $150000 with an 8% annual interest rate what are the annual payments?

a) $14042

b)$2052

c)$13965

d)$13427

Answer 1

1.The answer is b) do compete with each other

Independent projects do not affect the other projects of the firm and hence can be completed against each other

2.d)required rate of return

NPV = present value of cash inflows- present value of cash outflows

IRR is the rate at which NPV is equal to zero

3. Annual payment = amount of loan/Present value annuity factor

= 150,000/PVAF(8%, 25 periods)

=150,000/10.67477

=$14051.8

I.e. $14042 approx.