General business data bank 50556


6.3 The Payend Rule

 

Use the aftercited advice to confutation the topic(s) adown.

 

Rearden Metals is accordingly fissure a dismantle mining production to collect some of the raw materials demanded in surrendering Rearden metal. The judicious forfeiture of the fix and the associated absorbs of fissure up mining productions allure absorb $100 darling today. The mine is expected to propagate $16 darling esteem of ore per year for the proximate 12 years. At the end of the 12th year Rearden allure demand to lavish $20 darling to recaggravate the fix to its initiatory peculiar creation apparition.

 

1) The payend duration for Rearden's mining production is closest to:

A) 5.00 years

B) 6.00 years

C) 6.25 years

D) 6.50 years

 

 

2) Which of the aftercited statements is fabrication?

A) It is possible that an IRR does not hold for an siege convenience.

B) If the payend duration is close than a pre-specified protraction of span you confirm the plan.

C) The inside scold of recur (IRR) siege administration is naturalized upon the conception that if the recur on other opinions is elder than the recur on the siege convenience you should engage the siege convenience.

D) It is possible that there is no abatement scold that allure set the NPV resembling to nothing.

 

3) Which of the aftercited statements is fabrication?

A) The payend siege administration is naturalized on the conception that an convenience that pays end its judicious sieges instantly is a cheerful notion.

B) An IRR allure establishedly hold for an siege convenience.

C) A NPV allure establishedly hold for an siege convenience.

D) In unconcealed, there can be as abundant IRRs as the calculate of spans the plan's coin courses veer emblem aggravate span.

 

 

4) Which of the aftercited statements is fabrication?

A) In unconcealed, the IRR administration works for a stand-alone plan if all of the plan's fixed coin courses go-before its indirect coin courses.

B) There is no self-possessed fix for the IRR administration when there are multiple IRRs.

C) The payend administration is chiefly used accordingly of its gonerity.

D) No siege administration that ignores the set of opinion siege opinions can be optimal.

 

5) Which of the aftercited statements is fabrication?

A) The payend administration is suited in cases where the absorb of making an inemend sentence command not be capacious ample to defend the span required for wary the NPV.

B) The payend administration is certain accordingly it considers the span esteem of currency and depends on the absorb of high.

C) For most siege opportunities expenses capture-place judiciously and coin is current posterior.

D) Fifty percent of firms surveyed reputed using the payend administration for making sentences.

 

Consider a plan delay the aftercited coin courses:

 

Year

Cash Flow

0

-10,000

1

4,000

2

4,000

3

4,000

4

4,000

 

6) Assume the misengage abatement scold for this plan is 15%. The payend duration for this plan is closest to:

A) 3

B) 2.5

C) 2

D) 4

 

Use the consultation for the topic(s) adown.

 

Consider the aftercited two plans:

 

Project

Year 0

Cash Flow

Year 1

Cash Flow

Year 2

Cash Flow

Year 3

Cash Flow

Year 4

Cash Flow

Discount Rate

A

-100

40

50

60

N/A

.15

B

-73

30

30

30

30

.15

 

7) The payend duration for plan A is closest to:

A) 2.0 years

B) 2.4 years

C) 2.5 years

D) 2.2 years

 

8) The payend duration for plan B is closest to:

A) 2.5 years

B) 2.0 years

C) 2.2 years

D) 2.4 years

 

 

Use the consultation for the topic(s) adown.

 

Consider the aftercited two plans:

 

Project

Year 0

C/F

Year 1

C/F

Year 2

C/F

Year 3

C/F

Year 4

C/F

Year 5

C/F

Year 6

C/F

Year 7

C/F

Discount

Rate

Alpha

-79

20

25

30

35

40

N/A

N/A

15%

Beta

-80

25

25

25

25

25

25

25

16%

 

9) The payend duration for plan Alpha is closest to:

A) 3.2 years

B) 2.9 years

C) 3.1 years

D) 2.6 years

10) The payend duration for plan beta is closest to:

A) 2.9 years

B) 3.1 years

C) 2.6 years

D) 3.2 years

 

 

 

Use the advice for the topic(s) adown.

 

The Sisyphean Company is planning on endowing in a new plan. This allure complicate the forfeiture of some new machinery absorbing $450,000. The Sisyphean Company expects coin inflows from this plan as constructive adown:

 

Year One

Year Two

Year Three

Year Four

$200,000

$225,000

$275,000

$200,000

 

The misengage abatement scold for this plan is 16%.

 

11) The payend duration for this plan is closest to:

A) 2.1 years

B) 3.0 years

C) 2 years

D) 2.2 years

 

 

6.4 Choosing Betwixt Projects

 

1) Which of the aftercited statements is fabrication?

A) Problems can initiate using the IRR arrangement when the mutually esoteric sieges bear contrariant coin course patterns.

B) The IRR is improbable by the lamina of the siege convenience.

C) Multiple incremental IRRs command hold.

D) The incremental IRR administration assumes that the riskiness of the two plans is the corresponding.

 

2) Which of the aftercited statements is fabrication?

A) The incremental IRR siege administration applies the IRR administration to the destruction betwixt the coin courses of the two mutually esoteric opinions.

B) When a director must select incomplete mutually esoteric sieges, the NPV administration collects a innocuous confutation.

C) The advent of multiple IRRs is elder delay the established IRR administration than delay the incremental IRR administration.

D) Problems can initiate using the IRR arrangement when the mutually esoteric sieges bear destructions in lamina.

:

3) Which of the aftercited statements is fabrication?

A) When using the incremental IRR administration, you must preserve trail of which plan is the incremental plan and fix that the incremental coin courses are judiciously fixed and then behove indirect.

B) Picking one plan aggravate another barely accordingly it has a capaciousr IRR can bring to mistakes.

C) Problems initiate using the IRR arrangement when the mutually esoteric sieges bear destructions in lamina.

D) When the risks of two plans are contrariant, simply the NPV administration allure surrender a certain confutation.

 

4) Which of the aftercited statements is fabrication?

A) The incremental IRR demand not hold.

B) If a veer in the timing of the coin courses does not influence the NPV, then the veer in timing allure not impression the IRR.

C) Although the incremental IRR administration can collect a certain arrangement for choosing incomplete plans, it can be unamenable to engage truly.

D) When plans are mutually esoteric, it is not ample to particularize which plans bear fixed NPVs.

 

5) Consider two mutually esoteric plans A & B. If you remove the coin courses of convenience B from the coin courses of convenience A, then you should

A) capture convenience A if the established IRR exceeds the absorb of high.

B) capture convenience A if the incremental IRR exceeds the absorb of high.

C) capture convenience B if the established IRR exceeds the absorb of high.

D) capture convenience B if the incremental IRR exceeds the absorb of high.

 

6) You are unmanageable to run betwixt three mutually esoteric siege opportunities. The most misengage implement for identifying the emend sentence is

A) NPV.

B) Profitability protest.

C) IRR.

D) Incremental IRR.

:

 

Use the consultation for the topic(s) adown.

 

Consider the aftercited two plans:

 

Project

Year 0

Cash Flow

Year 1

Cash Flow

Year 2

Cash Flow

Year 3

Cash Flow

Year 4

Cash Flow

Discount Rate

A

-100

40

50

60

N/A

.15

B

-73

30

30

30

30

.15

 

7) Assume that plans A and B are mutually esoteric. The emend siege sentence and the best modereprove for that sentence is to

A) endow in plan A gone NPVB < NPVA.

B) endow in plan B gone IRRB > IRRA.

C) endow in plan B gone NPVB > NPVA.

D) endow in plan A gone NPVA > 0.

 

8) The incremental IRR of Plan B aggravate Plan A is closest to:

A) 12.6%

B) 23.3%

C) 1.7%

D) 17.3%

Answer: A

9) The acme calculate of incremental IRRs that could hold for plan B aggravate plan A is:

A) 1

B) 2

C) 0

D) 3

 

 

Use the consultation for the topic(s) adown.

 

Consider the aftercited two plans:

 

Project

Year 0

C/F

Year 1

C/F

Year 2

C/F

Year 3

C/F

Year 4

C/F

Year 5

C/F

Year 6

C/F

Year 7

C/F

Discount

Rate

Alpha

-79

20

25

30

35

40

N/A

N/A

15%

Beta

-80

25

25

25

25

25

25

25

16%

 

10) Assume that plans Alpha and Beta are mutually esoteric. The emend siege sentence and the best modereprove for that sentence is to

A) endow in plan Beta gone NPVBeta > 0.

B) endow in plan Alpha gone NPVBeta < NPVAlpha.

C) endow in plan Beta gone IRRB > IRRA.

D) endow in plan Beta gone NPVBeta > NPVAlpha> 0.

 

ects Alpha and Beta are mutually esoteric. Which of the aftercited statements is gentleman in-reference-to the siege sentence implements' suitability for deciding betwixt plans Alpha & Beta.

A) The incremental IRR should not be used gone the plans bear contrariant lives.

B) The incremental IRR should not be used gone the plans bear contrariant abatement scolds

C) The incremental IRR should not be used gone the plans bear contrariant coin course patterns.

D) Both the NPV and incremental IRR approximationes are misengage to work-out this problem.

12) When choosing betwixt plans, an opinion to comparing their IRRs is

A) to estimate the incremental IRR, which tells us the abatement scold at which it behoves proficonsultation to switch from one plan to the other.

B) to estimate the incremental payend duration, which tells us the calculate of years during which it behoves proficonsultation to switch from one plan to the other.

C) to estimate the incremental NPV, which tells us the abatement scold at which it behoves proficonsultation to switch from one plan to the other.

D) There is no opinion segregation test to comparing IRRs.

 

 

Use the consultation for the topic(s) adown.

 

Consider two mutually esoteric plans delay the aftercited coin courses:

 

Project

C/F0

C/F1

C/F2

C/F3

C/F4

C/F5

C/F6

A

$(41,215)

$12,500

$14,000

$16,500

$18,000

20,000

N/A

B

$(46,775)

$15,000

$15,000

$15,000

$15,000

$15,000

$15,000

 

13) You are accordingly using the incremental IRR approximation to run betwixt the two mutually esoteric plans A & B. How abundant possible incremental IRRs could there be?

A) 3

B) 0

C) 2

D) 1

 

14) If the abatement scold for plan A is 16%, then what is the NPV for plan A?

 

 

15) If the abatement scold for plan B is 15%, then what is the NPV for plan B?

 

16) What is the incremental IRR for plan B aggravate plan A? Would you impress comforconsultation basing your sentence on the incremental IRR?

 

17) Assuming that the abatement scold for plan A is 16% and the abatement scold for B is 15%, then surrendern that these are mutually esoteric plans, which plan would you capture and why?