General business data bank 50556


6.3 The Paytail Rule

 

Use the forthcoming advice to confirmance the endueigation(s) under.

 

Rearden Metals is consequently fissure a bare mining action to contribute some of the raw materials deficiencyed in surrendering Rearden metal. The primal alienation of the plant and the associated requires of fissure up mining actions accomplish require $100 darling today. The mine is expected to breed $16 darling excellence of ore per year for the next 12 years. At the end of the 12th year Rearden accomplish deficiency to expend $20 darling to re-establish the plant to its primary primordial sort apparition.

 

1) The paytail duration for Rearden's mining action is closest to:

A) 5.00 years

B) 6.00 years

C) 6.25 years

D) 6.50 years

 

 

2) Which of the forthcoming statements is fabrication?

A) It is implicit that an IRR does not stop for an cannonade opening.

B) If the paytail duration is near than a pre-specified prolixity of space you confirm the design.

C) The inner rebuke of produce (IRR) cannonade government is domiciled upon the notion that if the produce on other resources is superior than the produce on the cannonade opening you should agree the cannonade opening.

D) It is implicit that there is no remittance rebuke that accomplish set the NPV correspondent to cipher.

 

3) Which of the forthcoming statements is fabrication?

A) The paytail cannonade government is domiciled on the notion that an opening that pays tail its primal cannonades undeviatingly is a amiable notion.

B) An IRR accomplish frequently stop for an cannonade opening.

C) A NPV accomplish frequently stop for an cannonade opening.

D) In open, there can be as multifarious IRRs as the enumeblame of spaces the design's coin courses qualify proof aggravate space.

 

 

4) Which of the forthcoming statements is fabrication?

A) In open, the IRR government works for a stand-alone deproof if all of the design's real coin courses herald its disclaiming coin courses.

B) There is no manageable fix for the IRR government when there are multiple IRRs.

C) The paytail government is chiefly used consequently of its artlessness.

D) No cannonade government that ignores the set of resource cannonade resources can be optimal.

 

5) Which of the forthcoming statements is fabrication?

A) The paytail government is advantageous in cases where the require of making an inreform determination agency not be vast sufficient to exoneblame the space required for circumspect the NPV.

B) The paytail government is certain consequently it considers the space treasure of money and depends on the require of consummate.

C) For most cannonade opportunities expenses supervene primally and coin is accepted subjoined.

D) Fifty percent of firms surveyed reputed using the paytail government for making determinations.

 

Consider a deproof after a while the forthcoming coin courses:

 

Year

Cash Flow

0

-10,000

1

4,000

2

4,000

3

4,000

4

4,000

 

6) Assume the mismisalienate remittance rebuke for this deproof is 15%. The paytail duration for this deproof is closest to:

A) 3

B) 2.5

C) 2

D) 4

 

Use the board for the endueigation(s) under.

 

Consider the forthcoming two designs:

 

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 paytail duration for deproof A is closest to:

A) 2.0 years

B) 2.4 years

C) 2.5 years

D) 2.2 years

 

8) The paytail duration for deproof B is closest to:

A) 2.5 years

B) 2.0 years

C) 2.2 years

D) 2.4 years

 

 

Use the board for the endueigation(s) under.

 

Consider the forthcoming two designs:

 

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 paytail duration for deproof Alpha is closest to:

A) 3.2 years

B) 2.9 years

C) 3.1 years

D) 2.6 years

10) The paytail duration for deproof 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 endueigation(s) under.

 

The Sisyphean Company is planning on endueing in a new design. This accomplish compromise the alienation of some new machinery requireing $450,000. The Sisyphean Company expects coin inflows from this deproof as constructive under:

 

Year One

Year Two

Year Three

Year Four

$200,000

$225,000

$275,000

$200,000

 

The mismisalienate remittance rebuke for this deproof is 16%.

 

11) The paytail duration for this deproof 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 forthcoming statements is fabrication?

A) Problems can initiate using the IRR manner when the mutually odious cannonades entertain irrelative coin course patterns.

B) The IRR is monstrous by the lamina of the cannonade opening.

C) Multiple incremental IRRs agency stop.

D) The incremental IRR government assumes that the riskiness of the two designs is the identical.

 

2) Which of the forthcoming statements is fabrication?

A) The incremental IRR cannonade government applies the IRR government to the destruction betwixt the coin courses of the two mutually odious resources.

B) When a aggravateseer must mismisexpend shapeless mutually odious cannonades, the NPV government contributes a gonere confirmance.

C) The advent of multiple IRRs is superior after a while the certain IRR government than after a while the incremental IRR government.

D) Problems can initiate using the IRR manner when the mutually odious cannonades entertain destructions in lamina.

:

3) Which of the forthcoming statements is fabrication?

A) When using the incremental IRR government, you must tend way of which deproof is the incremental deproof and secure that the incremental coin courses are primally real and then behove disclaiming.

B) Picking one deproof aggravate another solely consequently it has a vastr IRR can direct to mistakes.

C) Problems initiate using the IRR manner when the mutually odious cannonades entertain destructions in lamina.

D) When the risks of two designs are irrelative, merely the NPV government accomplish grant a certain confirmance.

 

4) Which of the forthcoming statements is fabrication?

A) The incremental IRR deficiency not stop.

B) If a qualify in the timing of the coin courses does not concern the NPV, then the qualify in timing accomplish not contact the IRR.

C) Although the incremental IRR government can contribute a certain manner for choosing shapeless designs, it can be up-hill to use reformly.

D) When designs are mutually odious, it is not sufficient to particularize which designs entertain real NPVs.

 

5) Consider two mutually odious designs A & B. If you deduct the coin courses of opening B from the coin courses of opening A, then you should

A) interest opening A if the certain IRR exceeds the require of consummate.

B) interest opening A if the incremental IRR exceeds the require of consummate.

C) interest opening B if the certain IRR exceeds the require of consummate.

D) interest opening B if the incremental IRR exceeds the require of consummate.

 

6) You are up-hill to career betwixt three mutually odious cannonade opportunities. The most mismisalienate implement for identifying the reform determination is

A) NPV.

B) Profitability apostacy.

C) IRR.

D) Incremental IRR.

:

 

Use the board for the endueigation(s) under.

 

Consider the forthcoming two designs:

 

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 designs A and B are mutually odious. The reform cannonade determination and the best modeblame for that determination is to

A) endue in deproof A gone NPVB < NPVA.

B) endue in deproof B gone IRRB > IRRA.

C) endue in deproof B gone NPVB > NPVA.

D) endue in deproof A gone NPVA > 0.

 

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

A) 12.6%

B) 23.3%

C) 1.7%

D) 17.3%

Answer: A

9) The climax enumeblame of incremental IRRs that could stop for deproof B aggravate deproof A is:

A) 1

B) 2

C) 0

D) 3

 

 

Use the board for the endueigation(s) under.

 

Consider the forthcoming two designs:

 

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 designs Alpha and Beta are mutually odious. The reform cannonade determination and the best modeblame for that determination is to

A) endue in deproof Beta gone NPVBeta > 0.

B) endue in deproof Alpha gone NPVBeta < NPVAlpha.

C) endue in deproof Beta gone IRRB > IRRA.

D) endue in deproof Beta gone NPVBeta > NPVAlpha> 0.

 

ects Alpha and Beta are mutually odious. Which of the forthcoming statements is gentleman in-reference-to the cannonade determination implements' suitability for deciding betwixt designs Alpha & Beta.

A) The incremental IRR should not be used gone the designs entertain irrelative lives.

B) The incremental IRR should not be used gone the designs entertain irrelative remittance rebukes

C) The incremental IRR should not be used gone the designs entertain irrelative coin course patterns.

D) Both the NPV and incremental IRR accesses are mismisalienate to explain this gist.

12) When choosing betwixt designs, an resource to comparing their IRRs is

A) to estimate the incremental IRR, which tells us the remittance rebuke at which it behoves profiboard to switch from one deproof to the other.

B) to estimate the incremental paytail duration, which tells us the enumeblame of years during which it behoves profiboard to switch from one deproof to the other.

C) to estimate the incremental NPV, which tells us the remittance rebuke at which it behoves profiboard to switch from one deproof to the other.

D) There is no resource excerption measure to comparing IRRs.

 

 

Use the board for the endueigation(s) under.

 

Consider two mutually odious designs after a while the forthcoming 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 consequently using the incremental IRR access to career betwixt the two mutually odious designs A & B. How multifarious implicit incremental IRRs could there be?

A) 3

B) 0

C) 2

D) 1

 

14) If the remittance rebuke for deproof A is 16%, then what is the NPV for deproof A?

 

 

15) If the remittance rebuke for deproof B is 15%, then what is the NPV for deproof B?

 

16) What is the incremental IRR for deproof B aggravate deproof A? Would you reach comforboard basing your determination on the incremental IRR?

 

17) Assuming that the remittance rebuke for deproof A is 16% and the remittance rebuke for B is 15%, then grantn that these are mutually odious designs, which deproof would you interest and why?