Exam 9: Net Present Value and Other Investment Criteria

A project has been assigned a required annual accounting return of 14% and a required discount rate of 9%. The initial cost of the project is $25,000. The project produces annual cash flows of $9,876 a year for three years. What is the profitability index of this project?

A project produces annual net income of $9,500, $12,500, and $15,500 over the three years of its life, respectively. The initial cost of the project is $260,400. 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 7 percent?

In actual practice, managers frequently use the payback because of its simplicity.

Atlantic, Inc. is considering a project that is expected to produce the following cash flows over the next five years: $22,500, $27,900, $41,800, $33,000, and $15,000 respectively. Atlantic has $98,000 available, which is the amount needed to initiate the project. Should Atlantic accept this Project if the required rate of return is 12%? Why or why not?

Use the following mutually exclusive investment cash flows for the question(s) below: Based on the payback criterion, which of the following is NOT true?

The New Blues Co. is considering two projects. Project A consists of building a wholesale book outlet on lot #169 of the Minglewood Retail Center. Project B consists of building a sit-down Restaurant on lot #169 of the Minglewood Retail Center. When trying to decide whether or build the Book outlet or the restaurant, management should rely most heavily on the analysis results from the _____ method of analysis.

The internal rate of return:

The process of valuing an investment by determining the present value of its future cash flows is called (the):

The ABC Co. is considering the purchase of a $249,000 piece of equipment. This equipment is expected to produce cash flows of $78,500, $149,000, and $80,000 over the next three years. The Rate of return on this equipment is:

Ginny Trueblood is considering an investment which will cost her $120,000. The investment produces no cash flows for the first year. In the second year the cash inflow is $35,000. This inflow Will increase to $55,000 and then $75,000 for the following two years before ceasing permanently. Ginny requires a 10 percent rate of return and has a required discounted payback period of three Years. Ginny should _____ this project because the discounted payback period is _____

You need to borrow $2,000 quickly, and the local pawn shop will give it to you if you promise to repay them $200.92 monthly over the next year. From the pawn shop's viewpoint, what is the IRR of this transaction?

Net present value can be defined as:

Which one of the following statements concerning net present value (NPV) is correct?

Jack is considering adding work jeans and T-shirts to the items he stocks in his general store provided that his payback period is less than 2.5 years. He estimates that the initial cost of Inventory will be $6,750. The remodeling expenses required for this addition are $18,200. Jean and T-shirt sales are expected to produce net cash inflows of $10,200, $14,500, and $16,600 over the Next three years, respectively. Jack _____ add the jeans and T-shirts to his offerings as the payback Period is _____ years.

What is the reasoning or logic behind using the average accounting return since it does not provide pure financial analysis?

A disadvantage with the average accounting return is the difficulty in obtaining necessary information to do computation.

The purchase of new equipment is classified as a _____ decision.

A 50- year project has a cost of $500,000 and has annual cash flows of $100,000 in years 1-25, and $200,000 in years 26-50. The company's required rate is 8%. Given this information, calculate the Payback of the project.

If an investment has a(n) ___________ of 1.2 it can be said that the investment generates $1.20 in present value benefits for each dollar of invested costs.

Which of the following statements is false?