Exam 8: Net Present Value and Other Investment Criteria

A new machine will cost $100,000 and generate after-tax cash inflows of $356,000 for four years.Find the NPV if the firm uses a 12 percent opportunity cost of capital.What is the IRR? What is the payback period?

When calculating IRR with a trial and error process, one would raise discount rates in order to reach a zero NPV.

soft capital rationing:

As the opportunity cost of capital increases, the net present value of a project increases.

When graphing NPV at different discount rates for mutually exclusive projects, the project with the lower IRR should be selected whenever:

The profitability index for a project costing $40,000 and returning $15,000 annually for four years at an opportunity cost of capital of 12 percent is:

Norton Corporation is considering a 6 year project having an initial investment of $150,000.The project will provide cash inflows of $25,000 for the first 3 years and $60,000 during the last 3 years.Given this information, calculate the project's payback.

If a Project's expected rate of return exceeds its opportunity cost of capital, one would expect:

How can the net present value rule be used to analyze three common problems that involve competing projects: when to postpone an investment expenditure; how to choose between projects with equal lives; and when to replace equipment?

If the NPV of a project is greater than 0, then its profitability index is:

Evaluate the following mutually exclusive projects using IRR as a selection criterion.Assuming the discount rate to be 14 percent, which project-if either-would be selected? Project A costs $50,000 and returns $15,000 after-tax annually.Project B costs $35,000 and returns $11,000 after-tax annually.Both projects last five years.

The decision rule for net present value is to:

When managers cannot determine whether to invest now or wait until costs decrease later, the rule should be to:

A project costing $20,000 generates cash inflows of $9,000 annually for the first three years, followed by cash outflows of $1,000 annually for two years.At most, this project has ______ different IRR(s).

Which of the following changes will increase the NPV of a project?

If a project has multiple IRRs, the highest one is assumed to be correct.

If the net present value of a project which costs $20,000 is $5,000 when the discount rate is 10 percent, then the:

When calculating a Project's payback period, cash flows are discounted at:

The investment timing decision is aimed at analyzing whether the:

When choosing among mutually exclusive projects, the choice is easy using the NPV rule.As long as at least one project has positive NPV, simply choose the project with the highest NPV.