Question 1

If the sign of the cash flows for a project changes two times then the project has:

Accepted Answer

A)  one IRR 
B)  two IRRs 
C)  three IRRs 
D)  None of the above 
A)  one IRR 
B)  two IRRs 
C)  three IRRs 
D)  None of the above

Question 2

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 3

The payback rule ignores all cash flows after the cutoff date.

Accepted Answer

A) True 
 B)False

Question 4

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 5

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 6

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 7

The profitability index can be used for ranking projects under:

Accepted Answer

A)  Soft capital rationing 
B)  Hard capital rationing 
C)  Capital rationing at t = 0 
D)  Both A and B 
A)  Soft capital rationing 
B)  Hard capital rationing 
C)  Capital rationing at t = 0 
D)  Both A and B

Question 8

Present values have value adding-up property.

Accepted Answer

A) True 
 B)False

Question 9

A positive NPV will always generate a profitability index above 0.

Accepted Answer

A) True 
 B)False

Question 10

Decommissioning and clean-up cost for any project is always insignificant and should always be ignored.

Accepted Answer

A) True 
 B)False

Question 11

The cost of a new machine is $250,000. The machine has a 3-year life and no salvage value. If the cash flow each year is equal to 40% of the cost of the machine, calculate the payback period for the project:

Accepted Answer

A)  2 years 
B)  2.5 years 
C)  3 years 
D)  Cannot be determined because of insufficient data 
A)  2 years 
B)  2.5 years 
C)  3 years 
D)  Cannot be determined because of insufficient data

Question 12

Discuss some of the disadvantages of the payback rule.

Accepted Answer

The disadvantages are that it

Question 13

Project X has the following cash flows: C0 = +2000, C1 = -1,150 and C2 = -1,150. If the IRR of the project is 9.85% and if the cost of capital is 12%, you would:

Accepted Answer

A)  Accept the project 
B)  Reject the project
This is a loan project therefore accept. 
A)  Accept the project 
B)  Reject the project
This is a loan project therefore accept.

Question 14

The following are measures used by firms when making capital budgeting decisions except:

Accepted Answer

A)  Payback period 
B)  Internal rate of return 
C)  P/E ratio 
D)  Net present value 
A)  Payback period 
B)  Internal rate of return 
C)  P/E ratio 
D)  Net present value

Question 15

There can never be more than one value of IRR for any cash flow.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Briefly discuss capital rationing.

Accepted Answer

There are two types of capital rationing

Question 18

What are some of the disadvantages of using the IRR method?

Accepted Answer

There are several disadvantages to IRR m

Question 19

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 20

Mass Company is investing in a giant crane. It is expected to cost 6.6 million in initial investment and it is expected to generate an end of year cash flow of 3.0 million each year for three years. Calculate the MIRR for the project if the cost of capital is 12% APR.

Accepted Answer

A)  17.3% 
B)  15.3% 
C)  23.8% 
D)  22.1% 
A)  17.3% 
B)  15.3% 
C)  23.8% 
D)  22.1%

If the sign of the cash flows for a project changes two times then the project has:

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

The payback rule ignores all cash flows after the cutoff date.

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

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.

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%.

The profitability index can be used for ranking projects under:

Present values have value adding-up property.

A positive NPV will always generate a profitability index above 0.

Decommissioning and clean-up cost for any project is always insignificant and should always be ignored.

The cost of a new machine is $250,000. The machine has a 3-year life and no salvage value. If the cash flow each year is equal to 40% of the cost of the machine, calculate the payback period for the project:

Discuss some of the disadvantages of the payback rule.

Project X has the following cash flows: C0 = +2000, C1 = -1,150 and C2 = -1,150. If the IRR of the project is 9.85% and if the cost of capital is 12%, you would:

The following are measures used by firms when making capital budgeting decisions except:

There can never be more than one value of IRR for any cash flow.

Profitability index is useful under:

Briefly discuss capital rationing.

What are some of the disadvantages of using the IRR method?

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

Mass Company is investing in a giant crane. It is expected to cost 6.6 million in initial investment and it is expected to generate an end of year cash flow of 3.0 million each year for three years. Calculate the MIRR for the project if the cost of capital is 12% APR.

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

Efficient Markets and Behavioral Finance

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Financial Analysis

Financial Planning

Filters

Exam 5: Net Present Value and Other Investment Criteria

If the sign of the cash flows for a project changes two times then the project has:

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

The payback rule ignores all cash flows after the cutoff date.

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

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.

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%.

The profitability index can be used for ranking projects under:

Present values have value adding-up property.

A positive NPV will always generate a profitability index above 0.

Decommissioning and clean-up cost for any project is always insignificant and should always be ignored.

The cost of a new machine is $250,000. The machine has a 3-year life and no salvage value. If the cash flow each year is equal to 40% of the cost of the machine, calculate the payback period for the project:

Discuss some of the disadvantages of the payback rule.

Project X has the following cash flows: C0 = +2000, C1 = -1,150 and C2 = -1,150. If the IRR of the project is 9.85% and if the cost of capital is 12%, you would:

The following are measures used by firms when making capital budgeting decisions except:

There can never be more than one value of IRR for any cash flow.

Profitability index is useful under:

Briefly discuss capital rationing.

What are some of the disadvantages of using the IRR method?

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

Mass Company is investing in a giant crane. It is expected to cost 6.6 million in initial investment and it is expected to generate an end of year cash flow of 3.0 million each year for three years. Calculate the MIRR for the project if the cost of capital is 12% APR.

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

Efficient Markets and Behavioral Finance

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Financial Analysis

Financial Planning

Filters