Exam 7: Net Present Value AMCQ Other Investment Rules

Janice is considering an investment costing $65,500 with cash flows of $48,700 in Year 2,$36,500 in Year 3,and $19,900 in Year 4.The discount rate is 11 percent,and the required discounted payback period is 3 years.Should this project be accepted or rejected? What is the discounted payback period?

A proposed project has an initial cost of $200,000 and cash flows of -$13,200,$124,500,and $187,900 for Years 1 to 3,respectively.Victoria,the boss,insists that only projects that can return at least $1.10 in today's dollars for every $1 invested can be accepted.She also insists on applying a discount rate of 14 percent to all cash flows.Based on these criteria,the project should be

It will cost $28,900 to acquire a small ice cream cart.Cart sales are expected to be $10,500 a year for 3 years.After the 3 years,the cart is expected to be worthless.What is the payback period?

Projects A and B require an initial investment of $48,000 and $98,000,respectively.The projects are mutually exclusive,and you know the smaller project has a positive NPV.Which one of these methods is probably the best method to use to determine which project to accept?

A project has an initial cost of $12,300 and produces cash inflows of $5,200,$5,300,and $4,800 over Years 1 to 3,respectively.What is the discounted payback period if the required rate of return is 12 percent?

A project produces annual net income of $10,500,$15,700,and $16,200 over its 3-year life and requires an initial investment in fixed assets of $210,000.The book value of these assets will be $140,007,$46,662,and $15,561 at the end of Years 1 to 3,respectively.What is the average accounting rate of return if the required discount rate is 14.5 percent?

The Depot is considering a project with an initial cost for fixed assets of $279,900 and annual sales of $284,000 for four years.The profit margin is 6.72 percent,and the tax rate is 34 percent.The fixed assets will be depreciated straight-line over the life of the project to a zero book value.The required average accounting rate of return is 14.5 percent.Should this project be accepted or rejected? What is the AAR?

One advantage of the payback method of project analysis is the method's

A new project has an initial cost of $125,000 and cash flows of $33,300,$78,700,and $69,500 for Years 1 to 3,respectively.What is the net present value (NPV)of this project if the discount rate is 19.3 percent? What is the NPV if the discount rate is 12.7 percent?

Project A has an initial cost of $16,400 and cash flows of $5,100,$6,800,and $6,900 for Years 1 to 3,respectively.Project B has an initial cost of $21,200 and cash flows of $8,300,$7,900,and $7,700 for Years 1 to 3,respectively.What is the incremental IRR_B-A?

A project has an initial cost of $48,900 and cash flows of $31,300,-$11,600,and $40,300 for Years 1 to 3,respectively.The discount rate is 14 percent.What is the modified IRR?

Analysis using the profitability index

The payback method is a convenient and useful tool because

Assume a project has normal cash flows.According to the accept/reject rules,the project should be accepted if the

All else equal,the payback period for a project will decrease whenever the

The net present value of a project is projected at $210.How should this amount be interpreted?

You are considering a project with conventional cash flows.The IRR is 12.6 percent,NPV is -$198,and the payback period is 2.87 years.Which one of the following statements is correct given this information?

An independent,financing type project has an IRR of 11.4 percent and a required rate of return of 10.6 percent.Given this,you know the

A project has an initial cost of $51,900 and cash flows of $18,700,$56,500,and -$9,100 for Years 1 to 3,respectively.If the required rate of return for this investment is 17 percent,should you accept it based solely on the internal rate of return rule? Why or why not?

The payback method