Question 1

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

Accepted Answer

A) Net present value and internal rate of return 
B) Payback and discounted payback 
C) Accounting rate of return and internal rate of return 
D) Payback and accounting rate of return 
E) Internal rate of return and discounted payback 
A) Net present value and internal rate of return 
B) Payback and discounted payback 
C) Accounting rate of return and internal rate of return 
D) Payback and accounting rate of return 
E) Internal rate of return and discounted payback B

Question 2

Project Water has an initial cost of $598,900 and projected cash flows of $302,000,$264,000,and $250,000 for Years 1 to 3,respectively.Project Aqua has an initial cost of $512,200 and projected cash flows of $290,000,$214,000,and $220,000 for Years 1 to 3,respectively.What is the incremental IRRA-B of these two mutually exclusive projects?

Accepted Answer

A) 8)67% 
B) 6)93% 
C) 2)75% 
D) 11.06% 
E) 4)37% 
A) 8)67% 
B) 6)93% 
C) 2)75% 
D) 11.06% 
E) 4)37% C

Question 3

A new product has start-up costs of $389,200 and projected cash flows of $102,000,$187,500,and $245,000 for Years 1 to 3,respectively.What is the profitability index given a required return of 14 percent?

Accepted Answer

A) 0)98 
B) 0)83 
C) 1)16 
D) 1)03 
E) 1)21 
A) 0)98 
B) 0)83 
C) 1)16 
D) 1)03 
E) 1)21 D

Question 4

Rodriquez's Hot Rods is considering a new project with an initial cost of $54,780 and a discount rate of 14 percent.The project is expected to have cash inflows of $27,000 a year for 3 years.What is the discounted payback period?

Accepted Answer

A) 2)17 years 
B) 2)11 years 
C) 2)62 years 
D) 2)57 years 
E) Never 
A) 2)17 years 
B) 2)11 years 
C) 2)62 years 
D) 2)57 years 
E) Never

Question 5

The average accounting return method

Accepted Answer

A) ignores some project years. 
B) ignores the timing of net income. 
C) properly discounts all values. 
D) is preferred by financial analysts over the alternative methods. 
E) is never used in practice. 
A) ignores some project years. 
B) ignores the timing of net income. 
C) properly discounts all values. 
D) is preferred by financial analysts over the alternative methods. 
E) is never used in practice.

Question 6

What is the primary shortcoming of the average accounting rate of return from a financial perspective?

Accepted Answer

A) The lack of use in the business world 
B) The lack of a clear-cut decision rule 
C) The degree of the calculation difficulty 
D) The degree of estimation involved with the initial cost 
E) The use of net income rather than cash flows 
A) The lack of use in the business world 
B) The lack of a clear-cut decision rule 
C) The degree of the calculation difficulty 
D) The degree of estimation involved with the initial cost 
E) The use of net income rather than cash flows

Question 7

An investment

Accepted Answer

A) is acceptable if its calculated payback period is less than some prespecified period of time. 
B) should be accepted if the payback is positive and rejected if it is negative. 
C) should be rejected if the payback is positive and accepted if it is negative. 
D) is acceptable if its calculated payback period is greater than some prespecified period of time. 
E) should be accepted any time the payback period is less than the discounted payback period,given a positive discount rate. 
A) is acceptable if its calculated payback period is less than some prespecified period of time. 
B) should be accepted if the payback is positive and rejected if it is negative. 
C) should be rejected if the payback is positive and accepted if it is negative. 
D) is acceptable if its calculated payback period is greater than some prespecified period of time. 
E) should be accepted any time the payback period is less than the discounted payback period,given a positive discount rate.

Question 8

Baxter's Market is considering opening a new location with an initial cost of $139,200.This location is expected to generate cash flows of $22,400,$61,500,$37,800,and $21,000 in Years 1 to 4,respectively.What is the payback period?

Accepted Answer

A) 3)92 years 
B) 3)83 years 
C) 2)46 years 
D) 2)57 years 
E) 3)01 years 
A) 3)92 years 
B) 3)83 years 
C) 2)46 years 
D) 2)57 years 
E) 3)01 years

Question 9

Two key weaknesses of the internal rate of return rule are the

Accepted Answer

A) arbitrary determination of a discount rate and failure to consider initial expenditures. 
B) failure to correctly analyze mutually exclusive projects and the multiple rate of return problem. 
C) failure to consider all cash flows and the multiple rate of return problem. 
D) failure to consider initial expenditures and failure to correctly analyze mutually exclusive projects. 
E) failure to correctly analyze mutually exclusive projects and the lack of a clear-cut decision rule. 
A) arbitrary determination of a discount rate and failure to consider initial expenditures. 
B) failure to correctly analyze mutually exclusive projects and the multiple rate of return problem. 
C) failure to consider all cash flows and the multiple rate of return problem. 
D) failure to consider initial expenditures and failure to correctly analyze mutually exclusive projects. 
E) failure to correctly analyze mutually exclusive projects and the lack of a clear-cut decision rule.

Question 10

You are considering two independent projects both of which have been assigned a discount rate of 12 percent.Project A costs $39,100 and produces cash flows of $15,900 a year for 3 years.Project B costs $22,900 and produces cash flows of $14,000 a year for 2 years.Based on the profitability index,what is your recommendation concerning these projects?

Accepted Answer

A) Accept both projects 
B) Accept Project B because it has the lower PI 
C) Accept Project A because it has the lower PI 
D) Accept Project A and reject Project B 
E) Reject Project A and accept Project B 
A) Accept both projects 
B) Accept Project B because it has the lower PI 
C) Accept Project A because it has the lower PI 
D) Accept Project A and reject Project B 
E) Reject Project A and accept Project B

Question 11

You are considering two independent projects.The required rate of return is 13.75 percent for Project A and 14.25 percent for Project B.Project A has an initial cost of $51,400 and cash inflows of $21,400,$24,900,and $22,200 for Years 1 to 3,respectively.Project B has an initial cost of $38,300 and cash inflows of $23,000 a year for 2 years.Which project(s),if either,should you accept?

Accepted Answer

A) Accept both A and B 
B) Reject both A and B 
C) Accept A and reject B 
D) Accept B and reject A 
E) Accept either A or B but not both A and B 
A) Accept both A and B 
B) Reject both A and B 
C) Accept A and reject B 
D) Accept B and reject A 
E) Accept either A or B but not both A and B

Question 12

Project A has an initial cost of $211,400 and projected cash flows of $46,200,$64,900,and $135,800 for Years 1 to 3,respectively.Project B has an initial cost of $187,900 and projected cash flows of $43,200,$59,700,and $125,600 for Years 1 to 3,respectively.What is the incremental IRRA-B of these two mutually exclusive projects?

Accepted Answer

A) 8)67% 
B) −6.93% 
C) 11.06% 
D) −9.62% 
E) 9)37% 
A) 8)67% 
B) −6.93% 
C) 11.06% 
D) −9.62% 
E) 9)37%

Question 13

The Walk-Up Window is considering two mutually exclusive projects.Project A has an initial cost of $64,230 and annual cash flows of $25,200 for three years.Project B has an initial cost of $45,400 and annual cash flows of $21,400,$21,900,and $10,200 for Years 1 to 3,respectively.What is the incremental IRRA-B? Which project should be accepted if the discount rate is 9 percent? Which project should be accepted if the discount rate is 6 percent?

Accepted Answer

A) 6)65%;Project A;Project A 
B) 6)65%;Project B;Project A 
C) 7)21%;Project A;Project B 
D) 7)21%;Project B: Project A 
E) 6)65%;Project A;Project B 
A) 6)65%;Project A;Project A 
B) 6)65%;Project B;Project A 
C) 7)21%;Project A;Project B 
D) 7)21%;Project B: Project A 
E) 6)65%;Project A;Project B

Question 14

You are considering a project with an initial cost of $13,000.What is the payback period for this project if the annual cash inflows are $3,450,$5,970,$2,100,and $1,400 for Years 1 to 4,respectively?

Accepted Answer

A) 4)06 years 
B) 3)97 years 
C) 3)89 years 
D) Never 
E) 3)81 years 
A) 4)06 years 
B) 3)97 years 
C) 3)89 years 
D) Never 
E) 3)81 years

Question 15

Assume a project has normal cash flows.Given this,you should accept the project

Accepted Answer

A) if,and only if,the NPV is exactly equal to zero. 
B) only if the NPV is equal to the initial cash flow. 
C) if the NPV is positive and reject it if the NPV is negative. 
D) if the total cash inflows exceed the initial cash outflow. 
E) because it has positive cash flows for every time period after the initial investment. 
A) if,and only if,the NPV is exactly equal to zero. 
B) only if the NPV is equal to the initial cash flow. 
C) if the NPV is positive and reject it if the NPV is negative. 
D) if the total cash inflows exceed the initial cash outflow. 
E) because it has positive cash flows for every time period after the initial investment.

Question 16

The discounted payback period of a project will decrease whenever the

Accepted Answer

A) initial cash outlay for the project is increased. 
B) amount of each projected cash inflow is decreased. 
C) discount rate applied to the project is decreased. 
D) time period of the project is increased. 
E) costs of the fixed assets utilized in the project increase. 
A) initial cash outlay for the project is increased. 
B) amount of each projected cash inflow is decreased. 
C) discount rate applied to the project is decreased. 
D) time period of the project is increased. 
E) costs of the fixed assets utilized in the project increase.

Question 17

Assume a project has normal cash flows and a positive (non-zero)net present value.The project's

Accepted Answer

A) profitability index will be less than 1. 
B) internal rate of return will exceed its required rate of return. 
C) costs exceed its benefits. 
D) discounted payback period will exceed the life of the project. 
E) payback period must equal the life of the project. 
A) profitability index will be less than 1. 
B) internal rate of return will exceed its required rate of return. 
C) costs exceed its benefits. 
D) discounted payback period will exceed the life of the project. 
E) payback period must equal the life of the project.

Question 18

If the discounted payback method is preferable to the payback method,then why is the payback method ever used?

Accepted Answer

A) The discounted payback requires an arbitrary cutoff point while payback does not. 
B) Payback is easier to compute than discounted payback. 
C) Payback considers all of a project's cash flows but discounted payback does not. 
D) Payback requires the initial investment be recovered during a project's life while the required discounted payback period may be shorter. 
E) Payback can be used with mutually exclusive projects but discounted payback cannot. 
A) The discounted payback requires an arbitrary cutoff point while payback does not. 
B) Payback is easier to compute than discounted payback. 
C) Payback considers all of a project's cash flows but discounted payback does not. 
D) Payback requires the initial investment be recovered during a project's life while the required discounted payback period may be shorter. 
E) Payback can be used with mutually exclusive projects but discounted payback cannot.

Question 19

Turner Enterprises is analyzing a project that is expected to have annual cash flows of $46,400,$51,300 and -$15,200 for Years 1 to 3,respectively.The initial cash outlay is $65,900 and the discount rate is 12 percent.What is the modified IRR?

Accepted Answer

A) 17.77% 
B) 18.13% 
C) 18.66% 
D) 17.04% 
E) 16.98% 
A) 17.77% 
B) 18.13% 
C) 18.66% 
D) 17.04% 
E) 16.98%

Question 20

A project is expected to have annual cash flows of $36,800,$24,600,and -$9,200 for Years 1 to 3,respectively.The initial cash outlay is $44,500 and the discount rate is 11 percent.What is the modified IRR?

Accepted Answer

A) 14.66% 
B) 13.22% 
C) 12.73% 
D) 18.67% 
E) 15.70% 
A) 14.66% 
B) 13.22% 
C) 12.73% 
D) 18.67% 
E) 15.70%

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

A new product has start-up costs of $389,200 and projected cash flows of $102,000,$187,500,and $245,000 for Years 1 to 3,respectively.What is the profitability index given a required return of 14 percent?

Rodriquez's Hot Rods is considering a new project with an initial cost of $54,780 and a discount rate of 14 percent.The project is expected to have cash inflows of $27,000 a year for 3 years.What is the discounted payback period?

The average accounting return method

What is the primary shortcoming of the average accounting rate of return from a financial perspective?

An investment

Baxter's Market is considering opening a new location with an initial cost of $139,200.This location is expected to generate cash flows of $22,400,$61,500,$37,800,and $21,000 in Years 1 to 4,respectively.What is the payback period?

Two key weaknesses of the internal rate of return rule are the

You are considering a project with an initial cost of $13,000.What is the payback period for this project if the annual cash inflows are $3,450,$5,970,$2,100,and $1,400 for Years 1 to 4,respectively?

Assume a project has normal cash flows.Given this,you should accept the project

The discounted payback period of a project will decrease whenever the

Assume a project has normal cash flows and a positive (non-zero)net present value.The project's

If the discounted payback method is preferable to the payback method,then why is the payback method ever used?

Turner Enterprises is analyzing a project that is expected to have annual cash flows of $46,400,$51,300 and -$15,200 for Years 1 to 3,respectively.The initial cash outlay is $65,900 and the discount rate is 12 percent.What is the modified IRR?

A project is expected to have annual cash flows of $36,800,$24,600,and -$9,200 for Years 1 to 3,respectively.The initial cash outlay is $44,500 and the discount rate is 11 percent.What is the modified IRR?

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Discounted Cash Flow Valuation

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Making Capital Investment Decisions

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Return Amcq Risk: the Capital Asset Pricing Model Capm

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

Options Amcq Corporate Finance

Short-Term Finance Amcq Planning

Raising Capital

International Corporate Finance

Mergers Amcq Acquisitions Web Only

Filters

Exam 7: Net Present Value AMCQ Other Investment Rules

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

A new product has start-up costs of $389,200 and projected cash flows of $102,000,$187,500,and $245,000 for Years 1 to 3,respectively.What is the profitability index given a required return of 14 percent?

Rodriquez's Hot Rods is considering a new project with an initial cost of $54,780 and a discount rate of 14 percent.The project is expected to have cash inflows of $27,000 a year for 3 years.What is the discounted payback period?

The average accounting return method

What is the primary shortcoming of the average accounting rate of return from a financial perspective?

An investment

Baxter's Market is considering opening a new location with an initial cost of $139,200.This location is expected to generate cash flows of $22,400,$61,500,$37,800,and $21,000 in Years 1 to 4,respectively.What is the payback period?

Two key weaknesses of the internal rate of return rule are the

You are considering a project with an initial cost of $13,000.What is the payback period for this project if the annual cash inflows are $3,450,$5,970,$2,100,and $1,400 for Years 1 to 4,respectively?

Assume a project has normal cash flows.Given this,you should accept the project

The discounted payback period of a project will decrease whenever the

Assume a project has normal cash flows and a positive (non-zero)net present value.The project's

If the discounted payback method is preferable to the payback method,then why is the payback method ever used?

Turner Enterprises is analyzing a project that is expected to have annual cash flows of $46,400,$51,300 and -$15,200 for Years 1 to 3,respectively.The initial cash outlay is $65,900 and the discount rate is 12 percent.What is the modified IRR?

A project is expected to have annual cash flows of $36,800,$24,600,and -$9,200 for Years 1 to 3,respectively.The initial cash outlay is $44,500 and the discount rate is 11 percent.What is the modified IRR?

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Discounted Cash Flow Valuation

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Making Capital Investment Decisions

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Return Amcq Risk: the Capital Asset Pricing Model Capm

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

Options Amcq Corporate Finance

Short-Term Finance Amcq Planning

Raising Capital

International Corporate Finance

Mergers Amcq Acquisitions Web Only

Filters