Exam 9: Net Present Value and Other Investment Criteria

What is the net present value of a project that has an initial cash outflow of $18,900 and the following cash inflows? The required return is 13.25 percent.

Without using formulas, provide a definition of net present value (NPV).

A four year project that has an initial cost of $60,000. The future cash inflows are $40,000, $30,000, $20,000, and $10,000, respectively. Given this information, what is the IRR for?

Deciding which product markets to enter is a capital budgeting decision.

If the discount rate is 14% and the firm has limited funds, which of the following is true?

The advantages of the payback method of project analysis include the bias towards liquidity.

You are analyzing a project and have prepared the following data: Based on the internal rate of return of _____ percent for this project, you should _____ the project.

If financial managers only invest in projects that have a profitability index greater than one, then shareholder wealth will be maximized.

In comparing two projects using an NPV profile, at the point where the net present value of the projects involved are equal, ______________________.

Without using formulas, provide a definition of mutually exclusive investment decisions.

If a project is assigned a required rate of return equal to zero, then:

Project A has a cost of $300 and a three year annual cash flow of $100, $200 and $300. Project B has a cost of $400 and a three year annual cash flow of $185, $215 and $315. Given this Information, calculate the IRR cross-over rate.

Which one of the following statements is correct concerning the average accounting return (AAR)?

An investment is acceptable if the profitability index (PI) of the investment is:

Sal is considering a project that costs $15,000. The project produces cash inflows of $3,000, $5,000, $7,000, and $3,000 respectively for the next four years. Sal wants to recoup his money Within 3 years after applying a 6% discount rate. Sal should:

What is the net present value of a project with the following cash flows if the required rate of return is 14 percent?

NPV lets you know in today's dollars how much better off or worse off you will be if you accept a project.

A project has an initial investment of $150,000. Its four year cash inflows are estimated to be $50,000 in year 1, $80,000 in years 2 and 3, and $50,000 in year 4. If the rate of return is 12%, Calculate the project's Profitability Index.

A project costs $475 and has cash flows of $100 for the first three years and $75 in each of the project's last five years. If the discount rate is 10%, what is the discounted payback period?

In actual practice, managers frequently use the net present value because it is considered by many to be the best method of analysis.