Exam 5: Net Present Value and Other Investment Criteria

Story Company is investing in a giant crane. It is expected to cost $6 million in initial investment, and it is expected to generate an end-of-year after-tax cash flow of $3 million each year for three years. Calculate the NPV at 12 percent.

A project's internal rate of return depends on its level of risk.

The profitability index is the ratio of the

The payback period rule accepts all projects for which the payback period is

What are some of the advantages of using the IRR method?

Suppose a firm has $100 million in excess cash. It could

Muscle Company is investing in a giant crane. It is expected to cost $6.5 million in initial investment, and it is expected to generate an end-of-year cash flow of $3.0 million each year for three years. Calculate the IRR.

A project's "book value" represents, essentially, the market valuation of the project.

If the sign of the cash flows for a project changes two times, then the project likely has

The discounted payback method discounts cash flows at the opportunity cost of capital and then calculates the payback period.

The following are disadvantages of using the payback rule except the rule

The survey of CFOs indicates that the IRR method is used for evaluating investment projects by approximately

If the net present value (NPV)of project A is +$100 and that of project B is +$60, then the net present value of the combined projects is

Which of the following investment rules has the value additivity property?

How does modified internal rate of return (MIRR)differ from IRR?

The profitability index is always less than 1.

The payback period rule

Which of the following statements regarding the discounted payback period measure is true?

The following table gives the available projects (in $millions)for a firm. If the firm has a limit of $210 million to invest, what is the maximum NPV the company can obtain?

Driscoll Company is considering investing in a new project. The project will need an initial investment of $2,400,000 and will generate $1,200,000 (after-tax)cash flows for three years. Calculate the IRR for the project.