Question 1

The least-used capital budgeting technique in industry is

Accepted Answer

A)  NPV. 
B)  IRR. 
C)  Payback 
D)  MIRR. 
A)  NPV. 
B)  IRR. 
C)  Payback 
D)  MIRR.

Question 2

A company is considering two mutually exclusive projects, A and B. Project A requires an initial investment of $200, followed by cash flows of $185, $40, and $15. Project B requires an initial investment of $200, followed by cash flows of $0, $50, and $230. What is the IRR of the project that is best for the company's shareholders? The firm's cost of capital is 10 percent.

Accepted Answer

A)  15.45 percent 
B)  15.12 percent 
C)  13.57 percent 
D)  12.71 percent 
A)  15.45 percent 
B)  15.12 percent 
C)  13.57 percent 
D)  12.71 percent

Question 3

A financial asset will pay you $10,000 at the end of 10 years if you pay premiums of $175 per year at the end of each year for 10 years. What is the IRR of this financial asset?

Accepted Answer

A)  33.26 percent 
B)  34.98 percent 
C)  35.93 percent 
D)  36.72 percent 
A)  33.26 percent 
B)  34.98 percent 
C)  35.93 percent 
D)  36.72 percent

Question 4

Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years, respectively. Use the discounted payback decision to evaluate this project; should it be accepted or rejected?
$$\begin{array} { l c c c c c c c c c } 
\text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \
\text { Cash Flow } & - \$ 5,000 & \$ 1,200 & \$ 1,400 & \$ 1,600 & \$ 1,600 & \$  1,100 & \$ 2,000
\end{array}$$

Accepted Answer

A)  Discounted payback = 4.25 years, accept the project 
B)  Discounted payback = 3.50 years, accept the project 
C)  Discounted payback > 5 years, reject the project 
D)  Discounted payback = 4.67 years, reject the project 
A)  Discounted payback = 4.25 years, accept the project 
B)  Discounted payback = 3.50 years, accept the project 
C)  Discounted payback > 5 years, reject the project 
D)  Discounted payback = 4.67 years, reject the project

Question 5

Which of the following is incorrect regarding the IRR statistic?

Accepted Answer

A)  For independent projects, IRR will give the same accept/reject decision as NPV. 
B)  For the IRR statistic to give a different accept/reject decision from NPV, the cash flows must be non-normal and the projects must be mutually exclusive. 
C)  To solve for the IRR, one can simply solve the NPV formula for the rate that will make the NPV equal to zero. 
D)  None of the statements are incorrect. 
A)  For independent projects, IRR will give the same accept/reject decision as NPV. 
B)  For the IRR statistic to give a different accept/reject decision from NPV, the cash flows must be non-normal and the projects must be mutually exclusive. 
C)  To solve for the IRR, one can simply solve the NPV formula for the rate that will make the NPV equal to zero. 
D)  None of the statements are incorrect.

Question 6

Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown as follows. The required rate of return on projects of both of their risk class is 8 percent, and the maximum allowable payback and discounted payback statistic for the projects are two and three years, respectively.
$$\begin{array}{l}
\begin{array} {| l | l | l | l | l | }
\hline\text {Time: }&0&1&2&3\
\hline\text {Project A Cash flow:}&-20,000&10,000&30,000&1,000\
\hline\text {Project b Cash flow:}&-30,000&10,000&20,000&50,000\\hline
\end{array}
\end{array}$$
Use the IRR decision rule to evaluate these projects; which one(s) should be accepted or rejected?

Accepted Answer

A)  Accept both A and B 
B)  Accept neither A nor B 
C)  Accept A, reject B 
D)  Reject A, accept B 
A)  Accept both A and B 
B)  Accept neither A nor B 
C)  Accept A, reject B 
D)  Reject A, accept B

Question 7

Compute the NPV statistic for Project X given the following cash flows if the appropriate cost of capital is 10 percent.
Project X
$$\begin{array} { c c c c c c } 
\text { Timne } & 0 & 1 & 2 & 3 & 4 \
\text { Cash Flow } & - \$ 100,000 & - \$ 36,000 & \mathbf { \$ } 200,000 & \mathbf { \$ } 210,000 & - \$ 10,000
\end{array}$$

Accepted Answer

A)  $183,507.96 
B)  $247,410.67 
C)  $248,962.50 
D)  $262,622.77 
A)  $183,507.96 
B)  $247,410.67 
C)  $248,962.50 
D)  $262,622.77

Question 8

Compute the NPV statistic for Project U given the following cash flows if the appropriate cost of capital is 9 percent.
Project U
$$\begin{array} { l l l l c c c c } 
\text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \
\text { Cash Flow } & - \$ 1,000 & \$ 350 & \$ 1,480 & - \$ 520 & \$ 400 & - \$ 100
\end{array}$$

Accepted Answer

A)  $201.69 
B)  $273.82 
C)  $383.63 
D)  $397.21 
A)  $201.69 
B)  $273.82 
C)  $383.63 
D)  $397.21

Question 9

Compute the NPV for Project X with the cash flows shown as follows if the appropriate cost of capital is 9 percent.
$$\begin{array} { l l l l l l l l l } 
\text { Time } & 0 & 1 & & 2 & & 3 & 4 & 5 \
\text { Cash Flow } & - \$ 5,000 & \$ 1,000 & \$ & 2,000 & \$ & 2,000 & \$ 500 & \$ 500
\end{array}$$

Accepted Answer

A)  ?$2,013.18 
B)  ?$175.66 
C)  $486.29 
D)  $9,824.34 
A)  ?$2,013.18 
B)  ?$175.66 
C)  $486.29 
D)  $9,824.34

Question 10

All of the following capital budgeting tools are suitable for non-normal cash flows EXCEPT

Accepted Answer

A)  MIRR. 
B)  profitability index. 
C)  IRR. 
D)  NPV. 
A)  MIRR. 
B)  profitability index. 
C)  IRR. 
D)  NPV.

Question 11

Compute the MIRR statistic for Project J and advise whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent.
Project J
$$\begin{array} { l l l c c c c } 
\text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \
\text { Cash Flow } & - \$ 1,000 & \$ 300 & \$ 1,480 & - \$ 500 & \$ 300 & - \$ 100
\end{array}$$

Accepted Answer

A)  The project's MIRR is 14.77 percent and the project should be accepted. 
B)  The project's MIRR is 9.29 percent and the project should be rejected. 
C)  The project's MIRR is 13.76 percent and the project should be accepted. 
D)  The project's MIRR is 15.31 percent and the project should be accepted. 
A)  The project's MIRR is 14.77 percent and the project should be accepted. 
B)  The project's MIRR is 9.29 percent and the project should be rejected. 
C)  The project's MIRR is 13.76 percent and the project should be accepted. 
D)  The project's MIRR is 15.31 percent and the project should be accepted.

Question 12

All of the following capital budgeting tools are suitable for non-normal cash flows EXCEPT

Accepted Answer

A)  MIRR. 
B)  profitability index. 
C)  discounted payback. 
D)  NPV. 
A)  MIRR. 
B)  profitability index. 
C)  discounted payback. 
D)  NPV.

Question 13

A capital budgeting method that converts a project's cash flows using a more consistent reinvestment rate prior to applying the IRR decision rule is referred to as

Accepted Answer

A)  IRR. 
B)  EAR. 
C)  NPV. 
D)  MIRR. 
A)  IRR. 
B)  EAR. 
C)  NPV. 
D)  MIRR.

Question 14

Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years, respectively. Use the NPV decision to evaluate this project; should it be accepted or rejected?
$$\begin{array} { l c c c c c c c c c } 
\text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \
\text { Cash Flow } & - \$ 5,000 & \$ 1,200 & \$ 1,400 & \$ 1,600 & \$ 1,600 & \$  1,100 & \$ 2,000
\end{array}$$

Accepted Answer

A)  NPV = $1,766.55, accept the project 
B)  NPV = $892.19, accept the project 
C)  NPV = $1,288.94, accept the project 
D)  NPV = ?$104.73, reject the project 
A)  NPV = $1,766.55, accept the project 
B)  NPV = $892.19, accept the project 
C)  NPV = $1,288.94, accept the project 
D)  NPV = ?$104.73, reject the project

Question 15

Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistics for the project are three and three and a half years, respectively. Use the payback decision to evaluate this project; should it be accepted or rejected?
$$\begin{array} { l c c c c c c c c } 
\text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \
\text { Cash Flow } & - \$ 85,000 & \$ 12,000 & \$ 11,000 & \$ 13,000 & \$ 21,000 & \$ 31,000 & \$ 32,000
\end{array}$$

Accepted Answer

A)  Payback = 4.90 years, reject 
B)  Payback = 4.40 years, reject 
C)  Payback = 5.80 years, reject 
D)  Payback > 6.00 years, reject 
A)  Payback = 4.90 years, reject 
B)  Payback = 4.40 years, reject 
C)  Payback = 5.80 years, reject 
D)  Payback > 6.00 years, reject

Question 16

Compute the NPV for Project X with the cash flows shown as follows if the appropriate cost of capital is 10 percent.
$$\begin{array} { l c c c c c c } 
\text { Time } & 0 & 1 & 2 & 3 & 4 \
\text { Cash Flow } & - \$ 100,000 & \mathbf { \$ 3 6 , 0 0 0 } & \mathbf { \$ } 200,000 & \mathbf { \$ 2 1 0 , 0 0 0 } & \mathbf { \$ } 10,006
\end{array}$$

Accepted Answer

A)  $183,507.96 
B)  $247,410.67 
C)  $248,962.50 
D)  $262,622.77 
A)  $183,507.96 
B)  $247,410.67 
C)  $248,962.50 
D)  $262,622.77

Question 17

All capital budgeting techniques

Accepted Answer

A)  render the same investment decision. 
B)  use the same measurement units. 
C)  include all crucial information. 
D)  exclude some crucial information. 
A)  render the same investment decision. 
B)  use the same measurement units. 
C)  include all crucial information. 
D)  exclude some crucial information.

Question 18

Which of these describe groups or pairs of projects where you can accept one but not all?

Accepted Answer

A)  Dependent 
B)  Independent 
C)  Mutually exclusive 
D)  Mutually dependent 
A)  Dependent 
B)  Independent 
C)  Mutually exclusive 
D)  Mutually dependent

Question 19

Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown as follows. The required rate of return on projects of both of their risk class is 10 percent, and the maximum allowable payback and discounted payback statistic for the projects are two and a half and three and a half years, respectively.
$$\begin{array}{l}
\begin{array} {| l | l | l | l | l | }
\hline\text {Time: }&0&1&2&3\
\hline\text {Project A Cash flow:}&-1,000&300&400&700\
\hline\text {Project b Cash flow:}&-500&200&400&300\\hline
\end{array}
\end{array}$$
Use the IRR decision rule to evaluate these projects; which one(s) should be accepted or rejected?

Accepted Answer

A)  Accept both A and B 
B)  Accept neither A nor B 
C)  Accept A, reject B 
D)  Reject A, accept B 
A)  Accept both A and B 
B)  Accept neither A nor B 
C)  Accept A, reject B 
D)  Reject A, accept B

Question 20

Which of the following is a capital budgeting technique that converts a project's cash flows using a more consistent reinvestment rate prior to applying the internal rate of return, IRR, decision rule?

Accepted Answer

A)  Discounted payback 
B)  Net present value 
C)  Modified internal rate of return 
D)  Profitability index 
A)  Discounted payback 
B)  Net present value 
C)  Modified internal rate of return 
D)  Profitability index

The least-used capital budgeting technique in industry is

A financial asset will pay you $10,000 at the end of 10 years if you pay premiums of $175 per year at the end of each year for 10 years. What is the IRR of this financial asset?

Which of the following is incorrect regarding the IRR statistic?

Compute the NPV statistic for Project X given the following cash flows if the appropriate cost of capital is 10 percent. Project X Timne 0 1 2 3 4 Cash Flow -\ 100,000 -\ 36,000 200,000 210,000 -\ 10,000

Compute the NPV statistic for Project U given the following cash flows if the appropriate cost of capital is 9 percent. Project U Time 0 1 2 3 4 5 Cash Flow -\ 1,000 \ 350 \ 1,480 -\ 520 \ 400 -\ 100

Compute the NPV for Project X with the cash flows shown as follows if the appropriate cost of capital is 9 percent. Time 0 1 2 3 4 5 Cash Flow -\ 5,000 \ 1,000 \ 2,000 \ 2,000 \ 500 \ 500

All of the following capital budgeting tools are suitable for non-normal cash flows EXCEPT

Compute the MIRR statistic for Project J and advise whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. Project J Time 0 1 2 3 4 5 Cash Flow -\ 1,000 \ 300 \ 1,480 -\ 500 \ 300 -\ 100

All of the following capital budgeting tools are suitable for non-normal cash flows EXCEPT

A capital budgeting method that converts a project's cash flows using a more consistent reinvestment rate prior to applying the IRR decision rule is referred to as

Compute the NPV for Project X with the cash flows shown as follows if the appropriate cost of capital is 10 percent. Time 0 1 2 3 4 Cash Flow -\ 100,000 200,000 10,006

All capital budgeting techniques

Which of these describe groups or pairs of projects where you can accept one but not all?

Which of the following is a capital budgeting technique that converts a project's cash flows using a more consistent reinvestment rate prior to applying the internal rate of return, IRR, decision rule?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 13: Weighing Net Present Value and Other Capital Budgeting Criteria

The least-used capital budgeting technique in industry is

A financial asset will pay you $10,000 at the end of 10 years if you pay premiums of $175 per year at the end of each year for 10 years. What is the IRR of this financial asset?

Which of the following is incorrect regarding the IRR statistic?

Compute the NPV statistic for Project X given the following cash flows if the appropriate cost of capital is 10 percent. Project X Timne 0 1 2 3 4 Cash Flow -\ 100,000 -\ 36,000 200,000 210,000 -\ 10,000

Compute the NPV statistic for Project U given the following cash flows if the appropriate cost of capital is 9 percent. Project U Time 0 1 2 3 4 5 Cash Flow -\ 1,000 \ 350 \ 1,480 -\ 520 \ 400 -\ 100

Compute the NPV for Project X with the cash flows shown as follows if the appropriate cost of capital is 9 percent. Time 0 1 2 3 4 5 Cash Flow -\ 5,000 \ 1,000 \ 2,000 \ 2,000 \ 500 \ 500

All of the following capital budgeting tools are suitable for non-normal cash flows EXCEPT

Compute the MIRR statistic for Project J and advise whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. Project J Time 0 1 2 3 4 5 Cash Flow -\ 1,000 \ 300 \ 1,480 -\ 500 \ 300 -\ 100

All of the following capital budgeting tools are suitable for non-normal cash flows EXCEPT

A capital budgeting method that converts a project's cash flows using a more consistent reinvestment rate prior to applying the IRR decision rule is referred to as

Compute the NPV for Project X with the cash flows shown as follows if the appropriate cost of capital is 10 percent. Time 0 1 2 3 4 Cash Flow -\ 100,000 200,000 10,006

All capital budgeting techniques

Which of these describe groups or pairs of projects where you can accept one but not all?

Which of the following is a capital budgeting technique that converts a project's cash flows using a more consistent reinvestment rate prior to applying the internal rate of return, IRR, decision rule?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters