Question 1

What is the net present value of a project with the following cash flows if the discount rate is 9 percent?

Accepted Answer

A) $ 7,126.22 
B) $ 8,297.15 
C) $ 20,700.00 
D) -$ 7,126.22 
E) -$ 6,456.23 
A) $ 7,126.22 
B) $ 8,297.15 
C) $ 20,700.00 
D) -$ 7,126.22 
E) -$ 6,456.23

Question 2

Diamond Enterprises is considering a project that will produce cash inflows of $41,650 a year for three years followed by $49,000 in Year 4.What is the internal rate of return if the initial cost of the project is $219,000?

Accepted Answer

A) 9.43 percent 
B) 8.29 percent 
C) 7.81 percent 
D) 8.42 percent 
E) 7.55 percent 
A) 9.43 percent 
B) 8.29 percent 
C) 7.81 percent 
D) 8.42 percent 
E) 7.55 percent

Question 3

Which one of the following methods of analysis is most similar to computing the return on assets (ROA)?

Accepted Answer

A) Internal rate of return 
B) Profitability index 
C) Average accounting return 
D) Net present value 
E) Payback 
A) Internal rate of return 
B) Profitability index 
C) Average accounting return 
D) Net present value 
E) Payback

Question 4

A project has the following cash flows.What is the payback period?

Accepted Answer

A) 2.50 years 
B) 2.24 years 
C) 2.25 years 
D) 2.08 years 
E) 2.95 years 
A) 2.50 years 
B) 2.24 years 
C) 2.25 years 
D) 2.08 years 
E) 2.95 years

Question 5

Which one of the following methods of analysis ignores the time value of money?

Accepted Answer

A) Net present value 
B) Internal rate of return 
C) Discounted cash flow analysis 
D) Payback 
E) Profitability index 
A) Net present value 
B) Internal rate of return 
C) Discounted cash flow analysis 
D) Payback 
E) Profitability index

Question 6

You are considering the following two mutually exclusive projects.The crossover point is _____ and Project _____ should be accepted if the discount rate is 14 percent.

Accepted Answer

A) 13.28 percent; B 
B) 13.28 percent; A 
C) 0 percent; B 
D) 15.96 percent; A 
E) 15.96 percent; B 
A) 13.28 percent; B 
B) 13.28 percent; A 
C) 0 percent; B 
D) 15.96 percent; A 
E) 15.96 percent; B

Question 7

An investment has an initial cost of $300,000 and a life of four years.This investment will be depreciated by $60,000 a year and will generate the net income shown below.Should this project be accepted based on the average accounting rate of return (AAR) if the required rate is 9.5 percent? Why or why not?

Accepted Answer

A) Yes, because the AAR less than 9.5 percent 
B) Yes, because the AAR is 9.5 percent 
C) Yes, because the AAR is greater than 9.5 percent 
D) No, because the AAR is 9.5 percent 
E) No, because the AAR is greater than 9.5 percent 
A) Yes, because the AAR less than 9.5 percent 
B) Yes, because the AAR is 9.5 percent 
C) Yes, because the AAR is greater than 9.5 percent 
D) No, because the AAR is 9.5 percent 
E) No, because the AAR is greater than 9.5 percent

Question 8

The net present value profile illustrates how the net present value of an investment is affected by which one of the following?

Accepted Answer

A) Project's initial cost 
B) Discount rate 
C) Timing of the project's cash inflows 
D) Inflation rate 
E) Real rate of return 
A) Project's initial cost 
B) Discount rate 
C) Timing of the project's cash inflows 
D) Inflation rate 
E) Real rate of return

Question 9

Services United is considering a new project that requires an initial cash investment of $26,000.The project will generate cash inflows of $2,500, $11,700, $13,500, and $10,000 over each of the next four years, respectively.How long will it take to recover the initial investment?

Accepted Answer

A) 2.74 years 
B) 2.87 years 
C) 2.99 years 
D) 3.27 years 
E) 3.68 years 
A) 2.74 years 
B) 2.87 years 
C) 2.99 years 
D) 3.27 years 
E) 3.68 years

Question 10

An investment has an initial cost of $2.7 million and net income of $189,400, $178,600, and $172,500 for Years 1 to 3.This investment will be depreciated by $900,000 a year over the three-year life of the project.Should this project be accepted based on the average accounting rate of return if the required rate is 12.5 percent? Why or why not?

Accepted Answer

A) Yes, because the AAR is 12.5 percent 
B) Yes, because the AAR is less than 12.5 percent 
C) Yes, because the AAR is greater than 12.5 percent 
D) No, because the AAR is greater than 12.5 percent 
E) No, because the AAR is less than 12.5 percent 
A) Yes, because the AAR is 12.5 percent 
B) Yes, because the AAR is less than 12.5 percent 
C) Yes, because the AAR is greater than 12.5 percent 
D) No, because the AAR is greater than 12.5 percent 
E) No, because the AAR is less than 12.5 percent

Question 11

Which one of the following analytical methods is based on net income?

Accepted Answer

A) Profitability index 
B) Internal rate of return 
C) Average accounting return 
D) Modified internal rate of return 
E) Payback 
A) Profitability index 
B) Internal rate of return 
C) Average accounting return 
D) Modified internal rate of return 
E) Payback

Question 12

If an investment is producing a return that is equal to the required return, the investment's net present value will be:

Accepted Answer

A) positive. 
B) greater than the project's initial investment. 
C) zero. 
D) equal to the project's net profit. 
E) less than, or equal to, zero. 
A) positive. 
B) greater than the project's initial investment. 
C) zero. 
D) equal to the project's net profit. 
E) less than, or equal to, zero.

Question 13

The Golden Goose is considering a project with an initial cost of $46,700.The project will produce cash inflows of $10,000 a year for the first two years and $12,000 a year for the following three years.What is the payback period?

Accepted Answer

A) 2.87 years 
B) 3.23 years 
C) 3.41 years 
D) 3.79 years 
E) 4.23 years 
A) 2.87 years 
B) 3.23 years 
C) 3.41 years 
D) 3.79 years 
E) 4.23 years

Question 14

You are making an investment of $110,000 and require a rate of return of14.6 percent.You expect to receive $48,000 in the first year, $52,500 in the second year, and $55,000 in the third year.There will be a cash outflow of $900 in the fourth year to close out the investment.What is the net present value of this investment?

Accepted Answer

A) $7,881.55 
B) $4,305.56 
C) $1,879.63 
D) $633.33 
E) $8,534.25 
A) $7,881.55 
B) $4,305.56 
C) $1,879.63 
D) $633.33 
E) $8,534.25

Question 15

What is the payback period for a project with the following cash flows?

Accepted Answer

A) 2.56 years 
B) 2.89 years 
C) 3.08 years 
D) 3.24 years 
E) Never 
A) 2.56 years 
B) 2.89 years 
C) 3.08 years 
D) 3.24 years 
E) Never

Question 16

What is the net present value of a project with the following cash flows if the discount rate is 13 percent?

Accepted Answer

A) -$ 17,126.22 
B) $ 23,655.17 
C) $ 20,933.78 
D) $ 17,126.22 
E) -$16,456.23 
A) -$ 17,126.22 
B) $ 23,655.17 
C) $ 20,933.78 
D) $ 17,126.22 
E) -$16,456.23

Question 17

Which one of the following will occur when the internal rate of return equals the required return?

Accepted Answer

A) The average accounting return will equal 1.0. 
B) The profitability index will equal 1.0. 
C) The profitability index will equal 0. 
D) The net present value will equal the initial cash outflow. 
E) The profitability index will equal the average accounting return. 
A) The average accounting return will equal 1.0. 
B) The profitability index will equal 1.0. 
C) The profitability index will equal 0. 
D) The net present value will equal the initial cash outflow. 
E) The profitability index will equal the average accounting return.

Question 18

Empire Industries is considering adding a new product to its lineup.This product is expected to generate sales for four years after which time the product will be discontinued.What is the project's net present value at a required rate of return of 14.8 percent?

Accepted Answer

A) $1,505.52 
B) $1,067.24 
C) $1,758.71 
D) $1,519.58 
E) $902.71 
A) $1,505.52 
B) $1,067.24 
C) $1,758.71 
D) $1,519.58 
E) $902.71

Question 19

You are considering the following two mutually exclusive projects.The required return on each project is 14 percent.Which project should you accept and what is the best reason for that decision?

Accepted Answer

A) Project A; because it pays back faster 
B) Project A; because it has the higher profitability index 
C) Project B; because it has the higher profitability index 
D) Project B; because it has the higher net present value 
E) Project A; because it has the higher net present value 
A) Project A; because it pays back faster 
B) Project A; because it has the higher profitability index 
C) Project B; because it has the higher profitability index 
D) Project B; because it has the higher net present value 
E) Project A; because it has the higher net present value

Question 20

A proposed project requires an initial cash outlay of $25,000 for equipment and an additional cash outlay of $8,000 in Year 1 to cover operating costs.During Years 2 through 4, the project will generate cash inflows of $16,000 a year.What is the net present value of this project at a discount rate of 9 percent?

Accepted Answer

A) $4.817.17 
B) $4,864.53 
C) $4,238.78 
D) $2,873.44 
E) $3,948.34 
A) $4.817.17 
B) $4,864.53 
C) $4,238.78 
D) $2,873.44 
E) $3,948.34

What is the net present value of a project with the following cash flows if the discount rate is 9 percent?

Diamond Enterprises is considering a project that will produce cash inflows of $41,650 a year for three years followed by $49,000 in Year 4.What is the internal rate of return if the initial cost of the project is $219,000?

Which one of the following methods of analysis is most similar to computing the return on assets (ROA)?

A project has the following cash flows.What is the payback period?

Which one of the following methods of analysis ignores the time value of money?

You are considering the following two mutually exclusive projects.The crossover point is _ and Project _ should be accepted if the discount rate is 14 percent.

The net present value profile illustrates how the net present value of an investment is affected by which one of the following?

Services United is considering a new project that requires an initial cash investment of $26,000.The project will generate cash inflows of $2,500, $11,700, $13,500, and $10,000 over each of the next four years, respectively.How long will it take to recover the initial investment?

Which one of the following analytical methods is based on net income?

If an investment is producing a return that is equal to the required return, the investment's net present value will be:

The Golden Goose is considering a project with an initial cost of $46,700.The project will produce cash inflows of $10,000 a year for the first two years and $12,000 a year for the following three years.What is the payback period?

What is the payback period for a project with the following cash flows?

What is the net present value of a project with the following cash flows if the discount rate is 13 percent?

Which one of the following will occur when the internal rate of return equals the required return?

Empire Industries is considering adding a new product to its lineup.This product is expected to generate sales for four years after which time the product will be discontinued.What is the project's net present value at a required rate of return of 14.8 percent?

You are considering the following two mutually exclusive projects.The required return on each project is 14 percent.Which project should you accept and what is the best reason for that decision?

Introduction to Financial Management

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Equity Markets and Stock Valuation

Making Capital Investment Decisions

Some Lessons From Capital Market History

Risk and Return

Cost of Capital

Leverage and Capital Structure

Dividends and Dividend Policy

Raising Capital

Short-Term Financial Planning

Working Capital Management

International Aspects of Financial Management

Filters

Exam 8: Net Present Value and Other Investment Criteria

What is the net present value of a project with the following cash flows if the discount rate is 9 percent?

Diamond Enterprises is considering a project that will produce cash inflows of $41,650 a year for three years followed by $49,000 in Year 4.What is the internal rate of return if the initial cost of the project is $219,000?

Which one of the following methods of analysis is most similar to computing the return on assets (ROA)?

A project has the following cash flows.What is the payback period?

Which one of the following methods of analysis ignores the time value of money?

You are considering the following two mutually exclusive projects.The crossover point is _____ and Project _____ should be accepted if the discount rate is 14 percent.

The net present value profile illustrates how the net present value of an investment is affected by which one of the following?

Services United is considering a new project that requires an initial cash investment of $26,000.The project will generate cash inflows of $2,500, $11,700, $13,500, and $10,000 over each of the next four years, respectively.How long will it take to recover the initial investment?

Which one of the following analytical methods is based on net income?

If an investment is producing a return that is equal to the required return, the investment's net present value will be:

The Golden Goose is considering a project with an initial cost of $46,700.The project will produce cash inflows of $10,000 a year for the first two years and $12,000 a year for the following three years.What is the payback period?

What is the payback period for a project with the following cash flows?

What is the net present value of a project with the following cash flows if the discount rate is 13 percent?

Which one of the following will occur when the internal rate of return equals the required return?

Empire Industries is considering adding a new product to its lineup.This product is expected to generate sales for four years after which time the product will be discontinued.What is the project's net present value at a required rate of return of 14.8 percent?

You are considering the following two mutually exclusive projects.The required return on each project is 14 percent.Which project should you accept and what is the best reason for that decision?

Introduction to Financial Management

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Equity Markets and Stock Valuation

Making Capital Investment Decisions

Some Lessons From Capital Market History

Risk and Return

Cost of Capital

Leverage and Capital Structure

Dividends and Dividend Policy

Raising Capital

Short-Term Financial Planning

Working Capital Management

International Aspects of Financial Management

Filters

You are considering the following two mutually exclusive projects.The crossover point is _ and Project _ should be accepted if the discount rate is 14 percent.