Exam 5: Net Present Value and Other Investment Criteria

Discuss some of the advantages of using the payback method.

The profitability index will always be below 1.

The quickest way to calculate the internal rate of return (IRR) of a project is by:

The survey of CFOs indicates that IRR method is used for evaluating investment projects by:

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

Briefly explain the term "soft rationing".

The main advantage of the payback rule is:

If an investment project (normal project) has IRR equal to the cost of capital, the NPV for that project is:

Briefly explain the value adding-up property.

The IRR is defined as:

Profitability index is the ratio of:

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

Project X has the following cash flows: C0 = +2000, C1 = -1,300 and C2 = -1,500. If the IRR of the project is 25% and if the cost of capital is 18%, you would:

Given the following cash flows for project Z: C0 = -1,000, C1 = 600, C2 = 720 and C3 = 2000, calculate the discounted payback period for the project at a discount rate of 20%.

The net present value of a project depends upon:

Which of the following investment rules has value adding-up property?

The following are disadvantages of using the payback rule except:

Driscoll 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 IRR for the project.

The survey of CFOs indicates that NPV method is always, or almost always, used for evaluating investment projects by:

The following are some of the shortcomings of the IRR method except: