Question

1A) This option gives management the ability to get out of a project that does not meet expectations:

	a.	Investment timing option
	b.	Abandonment option
	c.	Shutdown option
	d.	Output flexibility option

1B) You are considering the purchase of a real estate income property. The cost of the four-room apartment complex is $700,000. The projected annual net operating cash flows at the end of years 1-4 are $50,000, $53,000, $56,000 and 60,000, respectively. Additionally, at the end of year four it is projected that the property could be sold for $760,000 (after commissions). Should you make the purchase if you client demand a 9% internal rate of return and a positive NPV?

	a.	No, the NPV is a positive $30,492 but the internal rate of return on this purchase is only 7.91%
	b.	Yes, the internal rate of return on this purchase is 12.52% and the NPV is $44,651
	c.	Yes, the internal rate of return on this purchase is 9.62% and the NPV is $14,631
	d.	No, the internal rate of return on this purchase is only 7.91% and the NPV is negative.

1C) You purchased 500 shares of stock on January 1, 2011 for $29. The stock paid dividends of $1.50 per share in December of 2011, $1.80 per share in December of 2012, and $2.10 per share in December of 2013. At the end of December you sell your full position in the stock at the market price of $35 per share. What is the annualized dollar-weighted return or IRR% of this investment?

	a.	13.1%
	b.	9.3%
	c.	12.2%
	d.	11.7%

1D) Drunk Uncle comes to you for advice about four business investments. Which of the following projects would give him the highest internal rate of return?

	a.	Cost of investment equals $55,000; annual end-of-year cash flows are: $10,000, $12,000, $14,000, $20,000, respectively
	b.	Cost of investment equals $45,000; annual end-of-year cash flows are: $15,000, $10,000, $5,000, $20,000, respectively
	c.	Cost of investment equals $30,000; annual end-of-year cash flows are: $0, $0, $14,000, $20,000, respectively
	d.	Cost of investment equals $25,000; annual end-of-year cash flows are: $2,500, $6,000, $6,000, $15,000, respectively