Question 1

For mutually exclusive projects, the project with the higher IRR is the correct selection.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following is incorrect for a borrowing project?

Accepted Answer

A) its NPV graph rises as discount rates increase. 
B) its cash flow at time zero is typically an inflow. 
C) its NPV is positive. 
D) it's acceptable if IRR exceeds cost of capital. 
A) its NPV graph rises as discount rates increase. 
B) its cash flow at time zero is typically an inflow. 
C) its NPV is positive. 
D) it's acceptable if IRR exceeds cost of capital. C

Question 3

What is the approximate IRR for a project that costs $100,000 and provides cash inflows of $30,000 for six years?

Accepted Answer

A) 19.9 percent 
B) 30.0 percent 
C) 32.3 percent 
D) 80.0 percent 
A) 19.9 percent 
B) 30.0 percent 
C) 32.3 percent 
D) 80.0 percent A

Question 4

If a project has a cost of $50,000 and a profitability index of 0.4, then:

Accepted Answer

A) its cash inflows are $70,000 
B) the present value of its cash inflows is $30,000 
C) its IRR is 20 percent 
D) its NPV is $20,000 
A) its cash inflows are $70,000 
B) the present value of its cash inflows is $30,000 
C) its IRR is 20 percent 
D) its NPV is $20,000

Question 5

What is the IRR of a project that costs $100,000 and provides cash inflows of $17,000 annually for six years?

Accepted Answer

A) 0.57 percent 
B) 2.00 percent 
C) 5.69 percent 
D) 56.87 percent 
A) 0.57 percent 
B) 2.00 percent 
C) 5.69 percent 
D) 56.87 percent

Question 6

Which of the following statements is true for a project with $20,000 initial cost, cash inflows of $5,800 per year for six years, and a discount rate of 15 percent?

Accepted Answer

A) its payback period is roughly 3 1/2 years. 
B) its NPV is $2,194. 
C) its IRR is 1.85 percent. 
D) its profitability index is 0.109. 
A) its payback period is roughly 3 1/2 years. 
B) its NPV is $2,194. 
C) its IRR is 1.85 percent. 
D) its profitability index is 0.109.

Question 7

Projects with an NPV of zero decrease shareholders' wealth by the cost of the project.

Accepted Answer

A) True 
 B)False

Question 8

The payback rule states that a project is acceptable if you get your money back within a specified period.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following can be deduced about a three-year investment project that has a two-year payback period?

Accepted Answer

A) the NPV is positive. 
B) the IRR is greater than the cost of capital. 
C) Both the NPV is positive and the IRR is greater than the cost of capital can be deduced. 
D) Neither the NPV is positive nor the IRR is greater than the cost of capital can be deduced. 
A) the NPV is positive. 
B) the IRR is greater than the cost of capital. 
C) Both the NPV is positive and the IRR is greater than the cost of capital can be deduced. 
D) Neither the NPV is positive nor the IRR is greater than the cost of capital can be deduced.

Question 10

According to the NPV rule, all projects should be accepted if NPV is positive when discounted at the:

Accepted Answer

A) internal rate of return. 
B) opportunity cost of capital. 
C) risk-free interest rate. 
D) accounting rate of return. 
A) internal rate of return. 
B) opportunity cost of capital. 
C) risk-free interest rate. 
D) accounting rate of return.

Question 11

Unlike using IRR, selecting projects according to their NPV will always lead to a correct accept-reject decision.

Accepted Answer

A) True 
 B)False

Question 12

A Project's payback period is determined to be four years.If it is later discovered that additional cash flows will be generated in years five and six, then:

Accepted Answer

A) the Project's payback period will be reduced. 
B) the Project's payback period will be increased. 
C) the Project's payback period will be unchanged. 
D) the discount rate must be known to determine whether the payback period changes. 
A) the Project's payback period will be reduced. 
B) the Project's payback period will be increased. 
C) the Project's payback period will be unchanged. 
D) the discount rate must be known to determine whether the payback period changes.

Question 13

Mountain Corporation is considering purchasing one of two photocopiers.The first copier will have an initial cost of $8,000 and will have operating costs of $1,000 per year during its 5 year life.The second photocopier will cost $10,500 and will have $1,100 per year during its 8 year life.If the company's required rate of return is 8%, determine the equivalent annual cost of each machine.

Accepted Answer

The equivalent annual cost of

Question 14

If the IRR for a project is 15 percent, then the Project's NPV would be:

Accepted Answer

A) negative at a discount rate of 10 percent. 
B) positive at a discount rate of 20 percent. 
C) negative at a discount rate of 20 percent. 
D) positive at a discount rate of 15 percent. 
A) negative at a discount rate of 10 percent. 
B) positive at a discount rate of 20 percent. 
C) negative at a discount rate of 20 percent. 
D) positive at a discount rate of 15 percent.

Question 15

A company is considering a 5-year project with an initial investment of $90,000.Cash inflows will be $30,000 for the first two years and $25,000 for the next 3 years.If the company's required rate of return is 12%, determine its discounted payback.

Accepted Answer

A) 4.40years 
B) 3.60 years 
C) 3.80 years 
D) 4.00 years 
A) 4.40years 
B) 3.60 years 
C) 3.80 years 
D) 4.00 years

Question 16

Pari Corporation is planning a 20 year project with an initial investment of $10 million.The project will have $50,000 cash outflows per year in years 1-4; $300,000 cash inflows in years 5-15, and $15,000 cash inflows in years 16-20.Determine the projects rate of return.

Accepted Answer

A) -10.57% 
B) -9.81% 
C) -5.51% 
D) 10.92% 
A) -10.57% 
B) -9.81% 
C) -5.51% 
D) 10.92%

Question 17

If projects A and B are independent, which of the following is true?

Accepted Answer

A) Value (A + 
B)  > value (
A)  + value (
B)  
B) Value (A + 
B)   value (
A)  
A) Value (A + 
B)  > value (
A)  + value (
B)  
B) Value (A + 
B)   value (
A)

Question 18

Ajax Corporation is planning a 10 year project that will have an initial cost of $500,000.During the first 2 years, there will be cash outflows of $40,000.Years 3-6 will see cash inflows of $120,000.Years 7-10 will see cash inflows of $200,000.If the company's required rate of return is 9%, determine the NPV of the project.

Accepted Answer

A) $143,200 
B) $225,650 
C) $375,800 
D) $500,000 
A) $143,200 
B) $225,650 
C) $375,800 
D) $500,000

Question 19

Find the IRR for a project costing $36,500 and returning $5,000 annually for the first four years, followed by $11,000 annually for three years.Hint: At a discount rate of 7 percent the Project's NPV is $2,458.91 and changes to -$1,966.86 at a discount rate of 10 percent.

Accepted Answer

$36,500 =

Question 20

Sometimes, comparing project NPVs properly can be surprisingly tricky.What are three important, but often challenging decisions of such?

Accepted Answer

- The investment timing decision.Should

Exam 8: Net Present Value and Other Investment Criteria

For mutually exclusive projects, the project with the higher IRR is the correct selection.

Which of the following is incorrect for a borrowing project?

What is the approximate IRR for a project that costs $100,000 and provides cash inflows of $30,000 for six years?

If a project has a cost of $50,000 and a profitability index of 0.4, then:

What is the IRR of a project that costs $100,000 and provides cash inflows of $17,000 annually for six years?

Which of the following statements is true for a project with $20,000 initial cost, cash inflows of $5,800 per year for six years, and a discount rate of 15 percent?

Projects with an NPV of zero decrease shareholders' wealth by the cost of the project.

The payback rule states that a project is acceptable if you get your money back within a specified period.

Which of the following can be deduced about a three-year investment project that has a two-year payback period?

According to the NPV rule, all projects should be accepted if NPV is positive when discounted at the:

Unlike using IRR, selecting projects according to their NPV will always lead to a correct accept-reject decision.

A Project's payback period is determined to be four years.If it is later discovered that additional cash flows will be generated in years five and six, then:

If the IRR for a project is 15 percent, then the Project's NPV would be:

A company is considering a 5-year project with an initial investment of $90,000.Cash inflows will be $30,000 for the first two years and $25,000 for the next 3 years.If the company's required rate of return is 12%, determine its discounted payback.

Pari Corporation is planning a 20 year project with an initial investment of $10 million.The project will have $50,000 cash outflows per year in years 1-4; $300,000 cash inflows in years 5-15, and $15,000 cash inflows in years 16-20.Determine the projects rate of return.

If projects A and B are independent, which of the following is true?

Find the IRR for a project costing $36,500 and returning $5,000 annually for the first four years, followed by $11,000 annually for three years.Hint: At a discount rate of 7 percent the Project's NPV is $2,458.91 and changes to -$1,966.86 at a discount rate of 10 percent.

Sometimes, comparing project NPVs properly can be surprisingly tricky.What are three important, but often challenging decisions of such?

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters