Question 1

Which of the following investment rules does not use the time value of the money concept?

Accepted Answer

A)  Net present value 
B)  Internal rate of return 
C)  The payback period 
D)  All of the above use the time value concept 
A)  Net present value 
B)  Internal rate of return 
C)  The payback period 
D)  All of the above use the time value concept

Question 2

When calculating a weighted average profitability index should you apply an index of 0 to left over money?

Accepted Answer

The NPV of money that is not invested is

Question 3

The internal rate of return is the discount rate that makes the PV of a project's cash inflows equal to zero.

Accepted Answer

A) True 
 B)False

Question 4

Benefit-cost ratio is defined as the ratio of:

Accepted Answer

A)  Net present value cash flow to initial investment 
B)  Present value of cash flow to initial investment 
C)  Net present value of cash flow to IRR 
D)  Present value of cash flow to IRR 
A)  Net present value cash flow to initial investment 
B)  Present value of cash flow to initial investment 
C)  Net present value of cash flow to IRR 
D)  Present value of cash flow to IRR

Question 5

If the NPV of project A is + $120, and that of project B is -$40 and that of project C is +
$40, what is the NPV of the combined project?

Accepted Answer

A)  +$100 
B)  -$40 
C)  +$70 
D)  +$120 
A)  +$100 
B)  -$40 
C)  +$70 
D)  +$120

Question 6

Suppose a firm has a $100 million in excess cash. It could:

Accepted Answer

A)  Invest the funds in projects with positive NPVs 
B)  Pay high dividends to the shareholders 
C)  Buy another firm 
D)  All of the above 
A)  Invest the funds in projects with positive NPVs 
B)  Pay high dividends to the shareholders 
C)  Buy another firm 
D)  All of the above

Question 7

A project will have only one internal rate of return if:

Accepted Answer

A)  The net present value is positive 
B)  The net present value is negative 
C)  The cash flows decline over the life of the project 
D)  There is a one sign change in the cash flows 
A)  The net present value is positive 
B)  The net present value is negative 
C)  The cash flows decline over the life of the project 
D)  There is a one sign change in the cash flows

Question 8

Which of the following investment rules may not use all possible cash flows in its calculations?

Accepted Answer

A)  NPV 
B)  Payback period 
C)  IRR 
D)  All of the above 
A)  NPV 
B)  Payback period 
C)  IRR 
D)  All of the above

Question 9

Given the following cash flow for project A: C0 = -3,000, C1 = +500, C2 = +1,500 and C3
= +5,000, calculate the NPV of the project using a 15% discount rate.

Accepted Answer

A)  $5,000 
B)  $2,352 
C)  $3,201 
D)  $1,857 
A)  $5,000 
B)  $2,352 
C)  $3,201 
D)  $1,857

Question 10

The net present value of a project depends upon:

Accepted Answer

A)  company's choice of accounting method 
B)  manager's tastes and preferences 
C)  project's cash flows and opportunity cost of capital 
D)  all of the above 
A)  company's choice of accounting method 
B)  manager's tastes and preferences 
C)  project's cash flows and opportunity cost of capital 
D)  all of the above

Question 11

The payback period rule accepts all projects for which the payback period is:

Accepted Answer

A)  Greater than the cut-off value 
B)  Less than the cut-off value 
C)  Is positive 
D)  An integer 
A)  Greater than the cut-off value 
B)  Less than the cut-off value 
C)  Is positive 
D)  An integer

Question 12

Given the following cash flows for project A: C0 = -1000, C1 = +600 ,C2 = +400, and C3 =
+1500, calculate the payback period.

Accepted Answer

A)  One year 
B)  Two years 
C)  Three years 
D)  None of the above 
A)  One year 
B)  Two years 
C)  Three years 
D)  None of the above

Question 13

Briefly discuss capital rationing.

Accepted Answer

There are two types of capital rationing

Question 14

Music Company is considering investing in a new project. The project will need an initial investment of $2,400,000 and will generate $1,200,000 (after-tax) cash flows for three years. Calculate the NPV for the project if the cost of capital is 15%.

Accepted Answer

A)  $169, 935 
B)  $1,200,000 
C)  $339,870 
D)  $125,846 
A)  $169, 935 
B)  $1,200,000 
C)  $339,870 
D)  $125,846

Question 15

Which of the following methods of evaluating capital investment projects incorporates the time value of money concept?
I. Payback Period, II) Discounted Payback Period,
III. Net Present Value (NPV),
IV. Internal
Rate of Return

Accepted Answer

A)  I, II, and III only 
B)  II, III, and IV only 
C)  III and IV only 
D)  I, II, III, and IV 
A)  I, II, and III only 
B)  II, III, and IV only 
C)  III and IV only 
D)  I, II, III, and IV

Question 16

Project Y has following cash flows: C0 = -800; C1 = +5,000; C2 = -5,000; Calculate the IRRs for the project:

Accepted Answer

A)  25% & 400% 
B)  125% & 500% 
C)  -44% & 11.6% 
D)  None of the above 
A)  25% & 400% 
B)  125% & 500% 
C)  -44% & 11.6% 
D)  None of the above

Question 17

Internal rate of return (IRR) method is also called:

Accepted Answer

A)  Discounted payback period method 
B)  Discounted cash-flow (DCF) rate of return method 
C)  Modified internal rate of return (MIRR) method 
D)  None of the above 
A)  Discounted payback period method 
B)  Discounted cash-flow (DCF) rate of return method 
C)  Modified internal rate of return (MIRR) method 
D)  None of the above

Question 18

Profitability index is useful under:

Accepted Answer

A)  Capital rationing 
B)  Mutually exclusive projects 
C)  Non-normal projects 
D)  None of the above 
A)  Capital rationing 
B)  Mutually exclusive projects 
C)  Non-normal projects 
D)  None of the above

Question 19

Briefly explain the term "hard rationing."

Accepted Answer

A firm faces hard rationing when it cann

Question 20

If the net present value (NPV) of project A is + $100, and that of project B is + $60, then the net present value of the combined project is:

Accepted Answer

A)  +$100 
B)  +$60 
C)  +$160 
D)  None of the above 
A)  +$100 
B)  +$60 
C)  +$160 
D)  None of the above

Exam 5: Net Present Value and Other Investment Criteria

Which of the following investment rules does not use the time value of the money concept?

When calculating a weighted average profitability index should you apply an index of 0 to left over money?

The internal rate of return is the discount rate that makes the PV of a project's cash inflows equal to zero.

Benefit-cost ratio is defined as the ratio of:

If the NPV of project A is + $120, and that of project B is -$40 and that of project C is + $40, what is the NPV of the combined project?

Suppose a firm has a $100 million in excess cash. It could:

A project will have only one internal rate of return if:

Which of the following investment rules may not use all possible cash flows in its calculations?

Given the following cash flow for project A: C0 = -3,000, C1 = +500, C2 = +1,500 and C3 = +5,000, calculate the NPV of the project using a 15% discount rate.

The net present value of a project depends upon:

The payback period rule accepts all projects for which the payback period is:

Given the following cash flows for project A: C0 = -1000, C1 = +600 ,C2 = +400, and C3 = +1500, calculate the payback period.

Briefly discuss capital rationing.

Music Company is considering investing in a new project. The project will need an initial investment of $2,400,000 and will generate $1,200,000 (after-tax) cash flows for three years. Calculate the NPV for the project if the cost of capital is 15%.

Which of the following methods of evaluating capital investment projects incorporates the time value of money concept? I. Payback Period, II) Discounted Payback Period, III. Net Present Value (NPV), IV. Internal Rate of Return

Project Y has following cash flows: C0 = -800; C1 = +5,000; C2 = -5,000; Calculate the IRRs for the project:

Internal rate of return (IRR) method is also called:

Profitability index is useful under:

Briefly explain the term "hard rationing."

If the net present value (NPV) of project A is + $100, and that of project B is + $60, then the net present value of the combined project is:

Goals and Governance of the Firm

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

Investment, Strategy, and Economic Rents

Agency Problems, Compensation, and Performance Measurement

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

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