3. Capital Budgeting
Npv And Irr — Quiz
Test your understanding of npv and irr with 5 practice questions.
Practice Questions
Question 1
Which of the following describes the core principle of the Net Present Value (NPV) method?
Question 2
What is the primary advantage of using the Net Present Value (NPV) method for capital budgeting decisions?
Question 3
A project has an initial investment of $$-\$75,000$ and is expected to generate cash flows of $+\$25,000$ in Year 1, $+\$30,000$ in Year 2, and $+\$35,000$ in Year 3. If the discount rate is $10\%$ per year, what is the approximate Net Present Value (NPV) of this project? (Use the formula: $NPV = \sum_{t=0}^{n} \frac{CF_t}{(1 + r)^t}$$)
Question 4
Which of the following is a key characteristic of the Internal Rate of Return (IRR) method?
Question 5
When evaluating independent projects, what is the decision rule for accepting a project based on its Net Present Value (NPV)?