Exam 8: Net Present Value and Other Investment Criteria

What is the minimum cash flow that could be received at the end of year three to make the following project "acceptable?" Initial cost = $100,000; cash flows at end of years one and two = $35,000; opportunity cost of capital = 10 percent.

If the opportunity cost of capital for a project exceeds the Project's IRR,then the project has a(n):

Which of the following statements is correct for a project with a positive NPV?

Net present value subtracts the present value of the cash flows from the initial investment.

The reason why the IRR criterion can give conflicting signals with mutually exclusive projects is:

"While IRR may be easier to understand than NPV,NPV should be used as a final decision criterion for an investment." Do you agree with the above statement? Why or why not?

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

Why doesn't the payback rule always make shareholders better off?

Project A has an IRR of 20 percent while Project B has an IRR of 30 percent.Under which of the following situations might you be inclined to select Project A,assuming the projects to be mutually exclusive,lending projects?

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

soft capital rationing:

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

Given a particular set of project cash flows,which of the following statements is correct?

Evaluate the following project using an IRR criterion,based on an opportunity cost of 10 percent: CF₀ = -6,000,CF₁ = +3,300,CF₂ = +3,300.

What is the equivalent annual cost for a project that requires a $40,000 investment at time-period zero,and a $10,000 annual expense during each of the next 4 years,if the opportunity cost of capital is 10 percent?

Both the NPV and the internal rate of return methods recognize that the timing of cash flows affects project value.

Borrowing and lending projects usually can be distinguished by whether:

As long as the NPV of a project declines smoothly with increases in the discount rate,the project is acceptable if its:

When the NPV of an investment is positive,then the IRR will be:

Which of the following investment criteria takes the time value of money into consideration?