Exam 9: Net Present Value and Other Investment Criteria

A project has an initial cash outlay of $16,500. Cash inflows are $5,200 in year 1, $6,800 in year 2, and $8,100 in year 3. What is the net present value if an 8.30% discount rate is applied to this project?

Analysis using the profitability index:

Without using formulas, provide a definition of internal rate of return (IRR).

Assuming that straight line depreciation is used, the average accounting return for a project is computed as the average:

The internal rate of return method of analysis is generally more popular in practice than NPV.

NPV lets you know in today's dollars how much better off or worse off you will be if you accept a project.

A 50- year project has a cost of $500,000 and has annual cash flows of $100,000 in years 1-25, and $200,000 in years 26-50. The company's required rate is 8%. Given this information, calculate the payback of the project.

A four year project that has an initial cost of $60,000. The future cash inflows are $40,000, $30,000, $20,000, and $10,000, respectively. Given this information, what is the IRR for?

The internal rate of return is defined as the:

Bodner Corporation purchased an asset costing $475,000. The asset has a 4 year life, no salvage value, and is depreciated on a straight line method. During the past four years, Bodner posted net income of $30,000, $25,000, $20,000 and $15,000. Given the following information, calculate the company's average accounting return over the past four years.

Based on the payback rule, which of the following is false?

A 30 year project is estimated to cost $35 million and provide annual cash flows of $5 million per year in years 1-5; $4 million per year in years 6-20 and $2 million per year in years 21-30. If the company's required rate of return is 10%, determine the payback of the project.

The internal rate of return method of analysis may produce multiple rates of return for a single project.

The payback calculation takes the time value of money into account.

A manager will prefer the IRR rule over the NPV rule if the manager:

Net present value is a highly valued decision-making tool because:

If the discount rate is 14% and the firm has limited funds, which of the following is true?

The length of time needed to recover the initial investment once time value of money is considered is called the:

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

The profitability index (PI) rule can be best stated as: