Using the profitability index, which of the following projects should be accepted? \[\begin{array} { l l l } \text { Project M: } & \text { NPV } = \$ 60,000 & \text { NINV } = \$ 200,000 \\ \text { Project N: } & \text { NPV } = \$ 10,000 & \text { NINV } = \$ 30,000 \\ \text { Project O: } & \text { NPV } = \$ 2,000 & \text { NINV } = \$ 5,000 \end{array}\]

A) Project M B) Project N C) Project O D) All projects should be accepted A) Project M B) Project N C) Project O D) All projects should be accepted

Exam 12: Capital Budgeting: Decision Criteria and Real Option Considerations

The net present value method assumes that cash flows are reinvested at the , whereas the internal rate of return method assumes that cash flows are reinvested at the .

(Multiple Choice)

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Question 61

The ____ measures the present value return for each dollar of initial investment.

(Multiple Choice)

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Question 62

What is the internal rate of return for a project that has a net investment of $370,000 and net cash flows of $60,000 in year 1, $75,000 in year 2, and $85,000 in years 3 through 8?

(Multiple Choice)

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Question 63

How does the profitability index differ from the net present value, and when would each method be preferred?

(Essay)

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Question 64

The value additivity principle indicates that, when a firm undertakes an independent project, the value of the firm is increased by the ____ from the project.

(Multiple Choice)

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Question 65

Multiple internal rates of return can occur when there is (are) ____.

(Multiple Choice)

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Question 66

Turntec is considering replacing an automatic shuttle machine that has a book value of $2,000 and a $0 market value with a more efficient machine that will cost $24,000. The annual net cash flows from the new equipment are expected to be $6,000 for the next 6 years. What is the net present value of this project? Assume the firm's cost of capital is 12% and its marginal tax rate is 40%.

(Multiple Choice)

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Question 67

Zimmer, a manufacturer of modular rooms, plans to expand its operation in Landshut, Germany. The expansion will cost $14.5 million and is expected to generate annual net cash flows of DM4.5 million for a period of 12 years and then the operation will be sold for DM2 million. The cost of capital for the project is 14%. Using the spot exchange rate of $0.60 per DM, compute the NPV of this expansion project.

(Multiple Choice)

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Question 68

There are many reasons why a firm can earn above-normal profits. These reasons include all of the following EXCEPT ____.

(Multiple Choice)

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Question 69

Using the profitability index, which of the following projects should be accepted? Project M: NPV =\ 60,000 NINV =\ 200,000 Project N: NPV =\ 10,000 NINV =\ 30,000 Project O: NPV =\ 2,000 NINV =\ 5,000

(Multiple Choice)

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Question 70

According to the profitability index criterion, a project is acceptable if its profitability index is greater than ____.

(Multiple Choice)

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Question 71

Calculate the profitability index for a project that has a net present value equal to -$10,000. The project's net investment is $20,000, and the firm has a 40 percent marginal tax rate.

(Multiple Choice)

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Question 72

The internal rate of return method assumes that the cash flows over the life of the project are reinvested at the ____.

(Multiple Choice)

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Question 73

In considering the payback period, ____.

(Multiple Choice)

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Question 74

Sigma is thinking about purchasing a new clam digger for $14,000. The expected net cash flows resulting from the digger are $9,000 in year 1, $7,000 in the 2nd year, $5,000 in the 3rd year, and $3,000 in the 4th year. Should Sigma purchase this digger if its cost of capital is 12%?

(Multiple Choice)

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Question 75

If a net present value analysis for a normal project gives an NPV greater than zero, an internal rate of return calculation on the same project would yield an internal rate of return ____ the required rate of return for the firm.

(Multiple Choice)

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Question 76

One weakness of the internal rate of return approach is that it ____.

(Multiple Choice)

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Question 77

Which of the following investment decision rules (if any) assumes that the cash flows generated are reinvested over the life of the project at the firm's cost of capital?

(Multiple Choice)

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Question 78

Real options in capital budgeting can be classified. The classification that means that the project is delayed and can be termed "waiting to invest" is the ____ option.

(Multiple Choice)

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Question 79

The payback method has all of the following advantages EXCEPT it ____.

(Multiple Choice)

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Question 80

Showing 61 - 80 of 103

Exam 12: Capital Budgeting: Decision Criteria and Real Option Considerations

The net present value method assumes that cash flows are reinvested at the ____, whereas the internal rate of return method assumes that cash flows are reinvested at the ____.

The ____ measures the present value return for each dollar of initial investment.

What is the internal rate of return for a project that has a net investment of $370,000 and net cash flows of $60,000 in year 1, $75,000 in year 2, and $85,000 in years 3 through 8?

How does the profitability index differ from the net present value, and when would each method be preferred?

The value additivity principle indicates that, when a firm undertakes an independent project, the value of the firm is increased by the ____ from the project.

Multiple internal rates of return can occur when there is (are) ____.

There are many reasons why a firm can earn above-normal profits. These reasons include all of the following EXCEPT ____.

Using the profitability index, which of the following projects should be accepted? Project M: NPV =\ 60,000 NINV =\ 200,000 Project N: NPV =\ 10,000 NINV =\ 30,000 Project O: NPV =\ 2,000 NINV =\ 5,000

According to the profitability index criterion, a project is acceptable if its profitability index is greater than ____.

Calculate the profitability index for a project that has a net present value equal to -$10,000. The project's net investment is $20,000, and the firm has a 40 percent marginal tax rate.

The internal rate of return method assumes that the cash flows over the life of the project are reinvested at the ____.

In considering the payback period, ____.

Sigma is thinking about purchasing a new clam digger for $14,000. The expected net cash flows resulting from the digger are $9,000 in year 1, $7,000 in the 2nd year, $5,000 in the 3rd year, and $3,000 in the 4th year. Should Sigma purchase this digger if its cost of capital is 12%?

If a net present value analysis for a normal project gives an NPV greater than zero, an internal rate of return calculation on the same project would yield an internal rate of return ____ the required rate of return for the firm.

One weakness of the internal rate of return approach is that it ____.

Which of the following investment decision rules (if any) assumes that the cash flows generated are reinvested over the life of the project at the firm's cost of capital?

Real options in capital budgeting can be classified. The classification that means that the project is delayed and can be termed "waiting to invest" is the ____ option.

The payback method has all of the following advantages EXCEPT it ____.

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

Continuous Compounding and Discounting

Fixed Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Mutually Exclusive Investments Having Unequal Lives

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Breakeven Analysis

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-Term Financing

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate Term Financing

Financing With Derivatives

Bond Refunding Analysis

Risk Management

International Financial Management

Corporate Restructuring

Filters

The net present value method assumes that cash flows are reinvested at the , whereas the internal rate of return method assumes that cash flows are reinvested at the .