PDB 41104-Assign 1

Name:

Student ID No

.1) What is the payback period of a RM40,000 investment with the following cash flows

Year 1=RM20,000
Year 2=RM25,000
Year 3=RM10,000
Year 4=RM10,000
Year 5 =RM5,000

A) 0.8 years
B) 1.8 years
C) 2.8 years
D) 3.8 years
E) 4.8 years

2) A NPV of zero implies that an investment’s

A) IRR is greater than the firm’s required rate of return

B) Present value of cash inflows exceeds the investment’s cost
C) Present value of cash inflows is positive
D) Cost exceeds the present value of its cash inflows
E) Cost is equal to the present value of its cash inflows

3) In comparing two projects using NPV profile, at the point where the net present values of the
project are equal,_________________.

A) the interest rate that makes them equal is called the crossover rate
B) the projects both have NPVs equal zero
C) the IRR of each is equal to zero
D) the IRR of each is equal to the cost of capital

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PDB 41104-Assign 1

E) the IRR exceed the cost of capital

4) You are considering the following projects but you have limited funds to invest and can’t
take them all. Using the profitability index, rank the projects in the order in which you would
accept them.(i.e. rank them from best to worst) Note that NONE of them are mutually
exclusive projects.

Initial investment NPV

Project A RM100,000 RM30,000
Project B RM 80,000 RM25,000
Project C RM 40,000 RM17,000

A) A,B,C
B) B,A,C
C) C,B,A
D) B,C,A
E) A,C,B

5) ACME Sdn. Bhd. will invest RM110,000 in a project that will produce the following cash
flows. The cost of capital is 11%. Should the project be undertaken? Give reasons.
(Note that the fourth year’s cash flow is negative)
Cash Flow (RM)
Year 1 36,000
Year 2 44,000
Year 3 38,000
Year 4 -44,000
Year 5 81,000