Exam 9: Net Present Value and Other Investment Criteria

Project A costs $47,800 with cash inflows of $34,200 in Year 1 and $28,700 in Year 2. Project B costs $63,200 with cash inflows of $21,900 in Year 1 and $59,200 in Year 2. These projects are independent and have an assigned discount rate of 15 percent. Based on the profitability index, what is your recommendation concerning these projects?

A project has a required payback period of three years. Which one of the following statements is correct concerning the payback analysis of this project? 

Which one of the following will decrease the net present value of a project? 

A project has a required return of 12.6 percent, an initial cash outflow of $42,100, and cash inflows of $16,500 in Year 1, $11,700 in Year 2, and $10,400 in Year 4. What is the net present value?

A project with financing type cash flows is typified by a project that has which one of the following characteristics? 

 Which one of the following statements would generally be considered as accurate given independent projects with conventional cash flows?

A project has an initial cost of $384,200 and cash inflows of $187,636, $93,496, $103,802, and $92,556, for Years 1 to 4, respectively. What is the NPV of this project if the discount rate is infinite?

Which one of the following methods of analysis provides the best information on the cost-benefit aspects of a project? 

Assume an investment has cash flows of −$39,700, $21,750, $18,500, and $12,500 for Years 0 to 3, respectively. What is the NPV if the required return is 12.9 percent? Should the project be accepted or rejected?

A project has an initial cost of $31,800 and a market value of $29,600. What is the difference between these two values called? 

A project has a net present value of zero. Which one of the following best describes this project?

In actual practice, managers most frequently use which two types of investment criteria? 

Project A has cash flows of −$50,000, $49,400, $27,200, and $24,500 for Years 0 to 3, respectively. Project B has an initial cost of $50,000 and an annual cash inflow of $18,500 for four years. These are mutually exclusive projects. What is the crossover rate?

A project has a discounted payback period that is equal to the required payback period. Given this, the project: 

Alicia is considering adding toys to her gift shop. She estimates the cost of new inventory will be $9,500 and remodeling expenses will be $850. Toy sales are expected to produce net cash inflows of $1,300, $4,900, $4,400, and $4,100 over the next four years, respectively. Should Alicia add toys to her store if she assigns a 3-year payback period to this project? Why or why not?

Kristi wants to start training her most junior assistant, Amy, in the art of project analysis. Amy has just started college and has no experience or background in business finance. To get her started, Kristi is going to assign the responsibility for all projects that have initial costs less than $1,000 to Amy to analyze. Which method is Kristi most apt to ask Amy to use in making her initial decisions?

Projects A and B are mutually exclusive. Project A has cash flows of -$10,000, $5,100, $3,400, and $4,500 for Years 0 to 3, respectively. Project B has cash flows of -$10,000, $4,500, $3,400, and $5,100 for Years 0 to 3, respectively. What is the crossover rate for these two projects?

Project A has cash flows of -$74,900, $18,400, $26,300, and $57,100 for Years 0 to 3, respectively. Project B has cash flows of -$79,000, $18,400, $22,700, and $51,500 for Years 0 to 3, respectively. Both projects are independent, have multiple noncash expenses, and use straight-line depreciation to a zero balance over the project's life. Neither project has any salvage value. Both projects have a required accounting return of 11.5 percent. Should you accept or reject these projects based on the average accounting return?

A project will produce cash inflows of $5,400 a year for 3 years with a final cash inflow of $2,400 in Year 4. The project's initial cost is $13,400. What is the net present value if the required rate of return is 14.2 percent?

Which two methods of project analysis are the most biased towards short-term projects?