Exam 9: Net Present Value and Other Investment Criteria

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You are comparing two mutually exclusive projects. The crossover point is 9 percent. You determine that you should accept project A if the required return is 6 percent. This implies that you should always accept project A and always reject project

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A project has an initial cost of $1,900. The cash inflows are $0, $500, $900, and $700 over the next four years, respectively. What is the payback period?

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A project has average net income of $2,100 a year over its 4-year life. The initial cost of the project is $65,000 which will be depreciated using straight-line depreciation to a book value of zero over The life of the project. The firm wants to earn a minimal average accounting return of 8.5 percent. The firm should _____ the project based on the AAR of _____

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The IRR is the most widely used capital budgeting technique.

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Martin is analyzing a project and has gathered the following data. Based on this data, what is the average accounting rate of return? The firm depreciates its assets using straight-line depreciation to A zero book value over the life of the asset. Martin is analyzing a project and has gathered the following data. Based on this data, what is the average accounting rate of return? The firm depreciates its assets using straight-line depreciation to A zero book value over the life of the asset.

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A project produces annual net income of $14,600, $18,700, and $23,500 over three years, respectively. The initial cost of the project is $310,800. This cost is depreciated straight-line to a Zero book value over three years. What is the average accounting rate of return if the required Discount rate is 9 percent?

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You are looking at an investment which has an initial cost of $400,000 and a salvage value of zero after five years. What is the average accounting return for this investment given the following Annual net incomes: You are looking at an investment which has an initial cost of $400,000 and a salvage value of zero after five years. What is the average accounting return for this investment given the following Annual net incomes:

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You should accept Project _____ because it has the _____ average accounting return.

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The advantages of the payback method of project analysis include the application of a discount rate to each separate cash flow.

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NPV and IRR can lead to different decisions in situations where the IRR is negative.

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A project has an initial cost of $61,000 and a 5-year life. The company uses straight-line depreciation to a zero book value over the life of the project. The projected net income from the Project is $1,500, $1,600, $1,900, $2,100, and $2,200 a year for the next five years, respectively. What is the average accounting rate of return?

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You are considering two mutually exclusive projects with the following cash flows. If the discount rate is 7.5 percent, you prefer Project _____ and if the discount rate is 12 percent, you prefer Project _____. You are considering two mutually exclusive projects with the following cash flows. If the discount rate is 7.5 percent, you prefer Project _____ and if the discount rate is 12 percent, you prefer Project _____.

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Which one of the following statements is correct concerning the payback period?

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You are analyzing a project and have prepared the following data: You are analyzing a project and have prepared the following data:   Based on the net present value of _____ for this project, you should _____ the project. Based on the net present value of _____ for this project, you should _____ the project.

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Without using formulas, provide a definition of average accounting return (AAR).

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A project produces the following cash flows over the next five years: $600, $200, $350, $400 and $500, respectively. The initial cost of the project is $1,400. What is the internal rate of return on this Project?

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The internal rate of return is defined as the:

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What is the internal rate of return on an investment with the following cash flows? What is the internal rate of return on an investment with the following cash flows?

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What is the payback period for the following investment? What is the payback period for the following investment?

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Matthew's Construction is considering a project that will cost $1.2 million to start. The project is expected to produce cash flows starting in year 2 of $269,000 a year for the following six years. What is the internal rate of return on this project?

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