Exam 8: Net Present Value and Other Investment Criteria

Soft and Cuddly is considering a new toy that will produce the following cash flows.Should the company produce this toy based on IRR if the firm requires a rate of return of 17.5 percent?

You were recently hired by a firm as a project analyst.The owner of the firm is unfamiliar with financial analysis and wants to know only what the expected dollar return is per dollar spent on a given project.Which financial method of analysis will provide the information that the owner requests?

If a project with conventional cash flows has a profitability index of 1.0, the project will:

What is the IRR of the following set of cash flows?

Both Projects A and B are acceptable as independent projects.However, the selection of either one of these projects eliminates the option of selecting the other project.Which one of the following terms best describes the relationship between Project A and Project B?

Murphy's Authentic is considering a project with an initial cost of $124,000.The project will not produce any cash flows for the first three years.Starting in Year 4, the project will produce cash inflows of $85,000 a year for three years.This project is risky, so the firm has assigned it a discount rate of 15 percent.What is the project's net present value?

You are considering the following two mutually exclusive projects.What is the crossover point?

Based on the most recent survey information presented in your textbook, CFOs tend to use which two methods of investment analysis the most frequently?

Which one of the following methods of analysis has the greatest bias toward short-term projects?

The net present value:

Which one of the following methods of analysis ignores cash flows?

The Flour Baker is considering a project with the following cash flows.Should this project be accepted based on its internal rate of return if the required return is 18 percent?

Which one of the following is the primary advantage of payback analysis?

Baker's Supply imposes a payback cutoff of 3.5 years for its international investment projects.If the company has the following two projects available, which project(s), if either, should it accept?

The possibility that more than one discount rate can cause the net present value of an investment to equal zero is referred to as:

What is the net present value of a project with the following cash flows if the discount rate is 12 percent?

Joe and Rich are both considering investing in a project that costs $25,500 and is expected to produce cash inflows of $15,800 in Year 1 and $15,300 in Year 2.Joe has a required return of 8.5 percent but Rich demands a return of 12.5 percent.Who, if either, should accept this project?

Chasteen, Inc., is considering an investment with an initial cost of $145,000 that would be depreciated straight-line to a zero book value over the life of the project.The cash inflows generated by the project are estimated at $76,000 for the first two years and $30,000 for the following two years.What is the internal rate of return?

What is the payback period for a $16,700 investment with the following cash flows?

The Steel Factory is considering a project that will produce annual cash flows of $43,800, $40,200, $46,200, and $41,800 over the next four years, respectively.What is the internal rate of return if the initial cost of the project is $127,900?