Exam 9: Net Present Value and Other Investment Criteria

You are considering a project with an initial cost of $6,400. What is the payback period for this project if the cash inflows are $900, $1,350, $2,800, and $1,500 a year over the next four years, Respectively?

Project A has a five-year life and an initial cost of $2,000 and annual cash flows of $700 per year. Project B also has a five-year life and an initial cost of $3,000 with annual cash flows of $950 per Year. Given this information, calculate the NPV that the IRR cross-over rate provides.

Without using formulas, provide a definition of net present value profile.

Using the profitability index, which of the following projects would you choose if you have limited funds?

When multiple IRR's exist, a project must have a negative NPV at the highest IRR.

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

A project with an NPV of zero ______________.

According to the text, the NPV rule states that "An investment should be accepted if the NPV is positive and rejected if it is negative." What does an NPV of zero mean? If you were a decision- maker faced with a project with a zero NPV (or very close to zero) what would you do? Why?

The average accounting return could lead to incorrect decisions when comparing mutually exclusive investments.