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D775 / D 775 Pre - Assessment (Latest Update 2025 / 2026) Introduction to Business Finance | Questions & Answers | Grade A | 100% Correct - WGU
Question:
Freedom Rock Bicycles is evaluating new production equipment. The expected cash inflows from the equipment are projected to be $50,000 in year 1, $80,000 in year 2, $60,000 in year 3, $45,000 in year 4, and $70,000 in year five. To determine if the investment is worthwhile, the finance team calculates the net present value (NPV) using a discount rate of 8%.How does NPV assess the equipment's annual cash inflows?
Answer:
By calculating the present value of each annual cash inflow for the appropriate number of periods at 8%, then adding those together
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Question:
Why might a business prefer using an internal rate of return (IRR) over net present value (NPV) for evaluating investments?
Answer:
Internal rate of return (IRR) provides a single percentage, which makes comparing dissimilar investments easier.
Question:
Which financial metric should be used alongside the payback period to provide a more comprehensive investment evaluation?
Answer:
Net present value
Question:
A firm is considering a project to invest in delivery vehicles. The project has a required rate of return of 10% and an internal rate of return (IRR) of 12%.Should the firm accept the project?
Answer:
Yes, because the IRR of 12% exceeds the required return of 10%.
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Question:
What is the advantage of using net present value (NPV) to evaluate investment opportunities?
Answer:
It accounts for the time value of money, providing a more accurate analysis.
Question:
A small business is evaluating two projects. Project A requires an investment of $250,000 and has an internal rate of return (IRR) of 8%. Project B requires an investment of $400,000, has a project life of 9 years, and a net present value (NPV) of $220,000 when discounted at 10%. The firm's cost of capital is 9%.How should the business proceed if it has enough money to invest in both projects?
Answer:
Invest in Project B only
Question:
Why is comparing the internal rate of return (IRR) to the hurdle rate important?
Answer:
To determine if a project generates a return higher than the required return
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