Question

For a project with conventional cash flows, a profitability index less than 1.0 indicates the:

a. Internal rate of return is equal to the firm's required rate of return.

b. Project never pays back.

c. Internal rate of return is less than the project's required discount rate.

d. Net present value is positive.

e. Accounting rate of return is positive.

Answer 1

Explanation:

For a project with conventional cash flows, a profitability index less than 1.0 indicates the a. internal rate of return is equal to the firm's required rate of return b. project never pays back. c. internal rate of return is less than the project's required discount rate. d. net present value is positive. e. accounting rate of return is positive 17. Sue and Tina are both considering the same project with the cash flows shown below. Sue s itf content earning 10 percent on the project but Tina wants to earn at least 14 percent. Who, either, should accept this project? Year Cash Flow a. Sue, but not Tina b. Tina, but not Sue C. Sue, Tina can go either accept or reject as her NPV is zero d. both Sue and Tina e. neither Sue nor Tina Use the following information to answer the next 2 questions You need to borrow $2,000 quickly, and the local pawn shop will give it to you if you promise to repay them $200 monthly over the next year. 18. From the pawn shop's point of view, what is the IRR of this transaction (Hint: from the pawn shop's point of view, the loan is an investment and the payments are cash inflows)? a. 1.33% per month 1.76% per month c. 2.04% per month d. 2.51% per month 2.92% per month