Exam 9: Net Present Value and Other Investment Criteria

Hayolom is analyzing a project and has gathered the following data. The firm depreciates its assets using straight-line depreciation to a zero book value over the life of the asset. What is the project's average accounting rate of return?

Which of the following is calculated using ONLY accounting numbers?

Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually for seven years, after which he plans to scrap the equipment and retire to the beaches of Jamaica. What is the project's payback period?

A project is accepted if the target AAR exceeds the project AAR.

Matthew's Construction is considering a project that will cost $1.2 million to start. The project is expected to produce cash flows starting in year 2 of $269,000 a year for the following six years. What is the internal rate of return on this project?

The discounted payback rule states that you should accept projects:

You are considering two independent projects with the following cash flows. The required return for both projects is 10 %. Given this information, which one of the following statements is correct?

In actual practice, managers frequently use the IRR because the results are easy to communicate and understand.

The present value of an investment's future cash flows divided by its initial cost is the:

Suppose a project costs $300 and produces cash flows of $100 over each of the following six years. What is the IRR of the project?

A project with an NPV of zero ______________.

An NPV of zero implies that an investment's ____________.

The following four-year project has an initial cost of $1,000,000. The future cash inflows for the next four years are $400,000, $300,000, $200,000, and $200,000, respectively. What is the payback period for this project?

Which of the following can cause a project to have multiple IRRs?

The internal rate of return will tell you the _____ which can be applied to a project while still creating a situation where the project is acceptable.

IRR uses an arbitrary cutoff number in its decision rule.

The average accounting rate of return is most similar to which one of the following ratios?

What is the internal rate of return for a project with the following cash flows?

You are analyzing a project and have prepared the following data: Based on the profitability index of _____ for this project, you should _____ the project.

An investment's average net income divided by its average book value defines the average: