Question 1

A project has the following cash flows.What is the internal rate of return?

Accepted Answer

A) 15.17 percent 
B) 13.41 percent 
C) 13.68 percent 
D) 12.53 percent 
E) 13.15 percent 
A) 15.17 percent 
B) 13.41 percent 
C) 13.68 percent 
D) 12.53 percent 
E) 13.15 percent

Question 2

What is the net present value of the following cash flows if the relevant discount rate is 7 percent?

Accepted Answer

A) $2,861.62 
B) $2,311.92 
C) $2,900.15 
D) $3,248.87 
E) $3,545.60 
A) $2,861.62 
B) $2,311.92 
C) $2,900.15 
D) $3,248.87 
E) $3,545.60

Question 3

The modified internal rate of return is specifically designed to address the problems associated with:

Accepted Answer

A) mutually exclusive projects. 
B) unconventional cash flows. 
C) long-term projects. 
D) negative net present values. 
E) crossover points. 
A) mutually exclusive projects. 
B) unconventional cash flows. 
C) long-term projects. 
D) negative net present values. 
E) crossover points.

Question 4

Textiles Unlimited has gathered projected cash flows for two projects.At what interest rate would the company be indifferent between the two projects? Which project is better if the required return is 12 percent?

Accepted Answer

A) 11.76 percent; A 
B) 12.49 percent; A 
C) 12.49 percent; B 
D) -4.44 percent; A 
E) -4.44 percent; B 
A) 11.76 percent; A 
B) 12.49 percent; A 
C) 12.49 percent; B 
D) -4.44 percent; A 
E) -4.44 percent; B

Question 5

Chestnut Tree Farms has identified the following two mutually exclusive projects:   Over what range of discount rates would you choose Project A?

Accepted Answer

A) 7.13 percent or less 
B) 7.13 percent or more 
C) 6.38 percent or more 
D) 6.38 percent or less 
E) 6.57 percent or more 
A) 7.13 percent or less 
B) 7.13 percent or more 
C) 6.38 percent or more 
D) 6.38 percent or less 
E) 6.57 percent or more

Question 6

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

Accepted Answer

A) -$972.61 
B) $972.61 
C) -$892.30 
D) $892.30 
E) $812.90 
A) -$972.61 
B) $972.61 
C) -$892.30 
D) $892.30 
E) $812.90

Question 7

An investment has conventional cash flows and a profitability index of 1.0.Given this, which one of the following must be true?

Accepted Answer

A) The internal rate of return exceeds the required rate of return. 
B) The investment never pays back. 
C) The net present value is equal to zero. 
D) The average accounting return is 1.0. 
E) The net present value is greater than 1.0. 
A) The internal rate of return exceeds the required rate of return. 
B) The investment never pays back. 
C) The net present value is equal to zero. 
D) The average accounting return is 1.0. 
E) The net present value is greater than 1.0.

Question 8

Which one of the following is true if the managers of a firm accept only projects that have a profitability index greater than 1.5?

Accepted Answer

A) The firm should increase in value each time it accepts a new project. 
B) The firm is most likely steadily losing value. 
C) The price of the firm's stock should remain constant. 
D) The net present value of each new project is zero. 
E) The internal rate of return on each new project is zero. 
A) The firm should increase in value each time it accepts a new project. 
B) The firm is most likely steadily losing value. 
C) The price of the firm's stock should remain constant. 
D) The net present value of each new project is zero. 
E) The internal rate of return on each new project is zero.

Question 9

The profitability index reflects the value created per dollar:

Accepted Answer

A) invested. 
B) of sales. 
C) of net income. 
D) of taxable income. 
E) of shareholders' equity. 
A) invested. 
B) of sales. 
C) of net income. 
D) of taxable income. 
E) of shareholders' equity.

Question 10

Delta Mu Delta is considering purchasing some new equipment costing $393,000.The equipment will be depreciated on a straight-line basis to a zero book value over the four-year life of the project.Projected net income for the four years is $16,900, $25,300, $27,700, and $18,400.What is the average accounting rate of return?

Accepted Answer

A) 11.23 percent 
B) 11.63 percent 
C) 12.01 percent 
D) 12.49 percent 
E) 10.87 percent 
A) 11.23 percent 
B) 11.63 percent 
C) 12.01 percent 
D) 12.49 percent 
E) 10.87 percent

Question 11

A project has expected cash inflows, starting with Year 1, of $900, $1,200, $1,500, and finally in Year 4, $2,000.The profitability index is 1.11 and the discount rate is 12 percent.What is the initial cost of the project?

Accepted Answer

A) $3,899.16 
B) $4,098.24 
C) $3,692.71 
D) $3,211.06 
E) $4,250.00 
A) $3,899.16 
B) $4,098.24 
C) $3,692.71 
D) $3,211.06 
E) $4,250.00

Question 12

Which one of the following methods of analysis is most appropriate to use when two investments are mutually exclusive?

Accepted Answer

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

Question 13

Consider the following two mutually exclusive projects:   Whichever project you choose, if any, you require a rate of return of 14 percent on your investment.If you apply the payback criterion, you will choose Project ______; if you apply the NPV criterion, you will choose Project ______; if you apply the IRR criterion, you will choose Project _____; if you choose the profitability index criterion, you will choose Project ___.Based on your first four answers, which project will you finally choose?

Accepted Answer

A) A; B; A; A; B 
B) A; A; B; B; A 
C) A; A; B; B; B 
D) B; A; B; A; A 
E) B; A; B; B; A 
A) A; B; A; A; B 
B) A; A; B; B; A 
C) A; A; B; B; B 
D) B; A; B; A; A 
E) B; A; B; B; A

Question 14

John is considering a project with cash inflows of $1,100, $1,000, $1,050, and $1,200 over the next four years, respectively.The relevant discount rate is 12.5 percent.What is the net present value of this project if it the start-up cost is $3,200?

Accepted Answer

A) $54.50 
B) $48.04 
C) -$35.45 
D) $89.33 
E) $122.00 
A) $54.50 
B) $48.04 
C) -$35.45 
D) $89.33 
E) $122.00

Question 15

You are considering an investment for which you require a rate of return of 8.5 percent.The investment costs $ 53,500 and will produce cash inflows of $20,000 for three years.Should you accept this project based on its internal rate of return? Why or why not?

Accepted Answer

A) Yes; because the IRR is 5.96 percent 
B) Yes; because the IRR is 9.56 percent 
C) Yes; because the IRR is 8.50 percent 
D) No; because the IRR is 9.56percent 
E) No'; because the IRR is 5.96 percent 
A) Yes; because the IRR is 5.96 percent 
B) Yes; because the IRR is 9.56 percent 
C) Yes; because the IRR is 8.50 percent 
D) No; because the IRR is 9.56percent 
E) No'; because the IRR is 5.96 percent

Question 16

What is the NPV of the following set of cash flows at a discount rate of zero percent? What if the discount rate is 15 percent?

Accepted Answer

A) $0; -$665.07 
B) $0; $6,916.59 
C) $0; $7,208.19 
D) $15,900; $7,208.19 
E) $15,900; $6,916.59 
A) $0; -$665.07 
B) $0; $6,916.59 
C) $0; $7,208.19 
D) $15,900; $7,208.19 
E) $15,900; $6,916.59

A project has the following cash flows.What is the internal rate of return?

What is the net present value of the following cash flows if the relevant discount rate is 7 percent?

The modified internal rate of return is specifically designed to address the problems associated with:

Textiles Unlimited has gathered projected cash flows for two projects.At what interest rate would the company be indifferent between the two projects? Which project is better if the required return is 12 percent?

Chestnut Tree Farms has identified the following two mutually exclusive projects: Over what range of discount rates would you choose Project A?

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

An investment has conventional cash flows and a profitability index of 1.0.Given this, which one of the following must be true?

Which one of the following is true if the managers of a firm accept only projects that have a profitability index greater than 1.5?

The profitability index reflects the value created per dollar:

A project has expected cash inflows, starting with Year 1, of $900, $1,200, $1,500, and finally in Year 4, $2,000.The profitability index is 1.11 and the discount rate is 12 percent.What is the initial cost of the project?

Which one of the following methods of analysis is most appropriate to use when two investments are mutually exclusive?

John is considering a project with cash inflows of $1,100, $1,000, $1,050, and $1,200 over the next four years, respectively.The relevant discount rate is 12.5 percent.What is the net present value of this project if it the start-up cost is $3,200?

You are considering an investment for which you require a rate of return of 8.5 percent.The investment costs $ 53,500 and will produce cash inflows of $20,000 for three years.Should you accept this project based on its internal rate of return? Why or why not?

What is the NPV of the following set of cash flows at a discount rate of zero percent? What if the discount rate is 15 percent?

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

A project has the following cash flows.What is the internal rate of return?

What is the net present value of the following cash flows if the relevant discount rate is 7 percent?

The modified internal rate of return is specifically designed to address the problems associated with:

Textiles Unlimited has gathered projected cash flows for two projects.At what interest rate would the company be indifferent between the two projects? Which project is better if the required return is 12 percent?

Chestnut Tree Farms has identified the following two mutually exclusive projects: Over what range of discount rates would you choose Project A?

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

An investment has conventional cash flows and a profitability index of 1.0.Given this, which one of the following must be true?

Which one of the following is true if the managers of a firm accept only projects that have a profitability index greater than 1.5?

The profitability index reflects the value created per dollar:

A project has expected cash inflows, starting with Year 1, of $900, $1,200, $1,500, and finally in Year 4, $2,000.The profitability index is 1.11 and the discount rate is 12 percent.What is the initial cost of the project?

Which one of the following methods of analysis is most appropriate to use when two investments are mutually exclusive?

John is considering a project with cash inflows of $1,100, $1,000, $1,050, and $1,200 over the next four years, respectively.The relevant discount rate is 12.5 percent.What is the net present value of this project if it the start-up cost is $3,200?

You are considering an investment for which you require a rate of return of 8.5 percent.The investment costs $ 53,500 and will produce cash inflows of $20,000 for three years.Should you accept this project based on its internal rate of return? Why or why not?

What is the NPV of the following set of cash flows at a discount rate of zero percent? What if the discount rate is 15 percent?

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