Question 1

What is the NPV for the following project cash flows at a discount rate of 15 percent? CF0 = ($1,000),CF1 = $700,CF2 = $700.

Accepted Answer

A)  ($308.70) 
B)  ($138.00) 
C)  $138.00 
D)  $308.70 
A)  ($308.70) 
B)  ($138.00) 
C)  $138.00 
D)  $308.70

Question 2

One method that can be used to increase the NPV of a project is to decrease the:

Accepted Answer

A)  project's payback. 
B)  project's cost of capital. 
C)  time until receipt of cash inflows. 
D)  number of project IRRs. 
A)  project's payback. 
B)  project's cost of capital. 
C)  time until receipt of cash inflows. 
D)  number of project IRRs.

Question 3

The investment timing decision is aimed at analyzing whether the:

Accepted Answer

A)  cash flows occur at the beginning or end of a year. 
B)  payback period or NPV analysis should be used. 
C)  project is a borrowing or lending project. 
D)  investment should occur now or at some future point. 
A)  cash flows occur at the beginning or end of a year. 
B)  payback period or NPV analysis should be used. 
C)  project is a borrowing or lending project. 
D)  investment should occur now or at some future point.

Question 4

When using a profitability index to select projects,a value of 0.63 is preferred over a value of 0.21.

Accepted Answer

A) True 
 B)False

Question 5

When a manager does not accept a positive-NPV project,shareholders face an opportunity cost in the amount of the:

Accepted Answer

A)  Project's initial cost. 
B)  Project's NPV. 
C)  Project's discounted cash flows. 
D)  Soft capital rationing budget. 
A)  Project's initial cost. 
B)  Project's NPV. 
C)  Project's discounted cash flows. 
D)  Soft capital rationing budget.

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

Dons Corporation is planning a 15 year project with an initial investment of $2,500,000.The project will have $400,000 cash inflows per year in years 1-5; $200,000 cash inflows in years 6-10,and $40,000 cash inflows in years 11-15.Determine the projects rate of return.

Accepted Answer

A)  12.67% 
B)  9.35% 
C)  5.15% 
D)  3.67% 
A)  12.67% 
B)  9.35% 
C)  5.15% 
D)  3.67%

Question 8

What is the net present value of an investment,and how do you calculate it?

Accepted Answer

The net present value of a project measu

Question 9

A firm uses the profitability index to select between two mutually exclusive investments.If no capital rationing has been imposed,which project should be selected?

Accepted Answer

A)  select the project with the higher profitability index. 
B)  select the project with the lower profitability index. 
C)  without capital rationing, both projects can be selected. 
D)  without capital rationing, select by NPV method. 
A)  select the project with the higher profitability index. 
B)  select the project with the lower profitability index. 
C)  without capital rationing, both projects can be selected. 
D)  without capital rationing, select by NPV method.

Question 10

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 11

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 12

The acceptance of an investment project implies that: Its IRR is greater than 15 percent.
Its NPV is greater than its IRR.
Its NPV is greater than 0.

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  Both 2 and 3 
A)  1 
B)  2 
C)  3 
D)  Both 2 and 3

Question 13

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 14

Gordon Corporation is considering a 30 year project.The present value of all future cash flows from the project is $825,000.Its initial investment is $475,000.Calculate the Profitability Index on this project.

Accepted Answer

A)  0.74 
B)  0.84 
C)  1.14 
D)  1.74 
A)  0.74 
B)  0.84 
C)  1.14 
D)  1.74

Question 15

The use of NPV as an investment criterion is said to be more reliable than using IRR.Discuss potential problems with the use of IRR,and how to reconcile the two methods' results.

Accepted Answer

Problems can occur with the use of IRR i

Question 16

Which of the following statements is most likely correct for a project costing $50,000 and returning $14,000 per year for five years?

Accepted Answer

A)  NPV = $3,071.01 
B)  NPV = $20,000 
C)  IRR = 2.8 percent 
D)  IRR is greater than 10 percent 
A)  NPV = $3,071.01 
B)  NPV = $20,000 
C)  IRR = 2.8 percent 
D)  IRR is greater than 10 percent

Question 17

A polisher costs $10,000 and will cost $20,000 a year to operate and maintain.If the discount rate is 10 percent and the polisher will last for 5 years,what is the equivalent annual cost of the tool?

Accepted Answer

A)  $22,638 
B)  $85,815 
C)  $12,638 
D)  $32,638 
A)  $22,638 
B)  $85,815 
C)  $12,638 
D)  $32,638

Question 18

What happens to the equivalent annual cost of a project as the opportunity cost of capital decreases?

Accepted Answer

A)  it increases. 
B)  it decreases. 
C)  it is not affected. 
D)  it depends on whether or not the projects are mutually exclusive. 
A)  it increases. 
B)  it decreases. 
C)  it is not affected. 
D)  it depends on whether or not the projects are mutually exclusive.

Question 19

Soft capital rationing is imposed upon a firm from _____ sources,while hard capital rationing is imposed from _____ sources.

Accepted Answer

A)  Internal; external 
B)  Internal; internal 
C)  External; internal 
D)  External; external 
A)  Internal; external 
B)  Internal; internal 
C)  External; internal 
D)  External; external

Question 20

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?

Accepted Answer

Sometimes a project may have a positive

Exam 8: Net Present Value and Other Investment Criteria

What is the NPV for the following project cash flows at a discount rate of 15 percent? CF0 = ($1,000),CF1 = $700,CF2 = $700.

One method that can be used to increase the NPV of a project is to decrease the:

The investment timing decision is aimed at analyzing whether the:

When using a profitability index to select projects,a value of 0.63 is preferred over a value of 0.21.

When a manager does not accept a positive-NPV project,shareholders face an opportunity cost in the amount of 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.

Dons Corporation is planning a 15 year project with an initial investment of $2,500,000.The project will have $400,000 cash inflows per year in years 1-5; $200,000 cash inflows in years 6-10,and $40,000 cash inflows in years 11-15.Determine the projects rate of return.

What is the net present value of an investment,and how do you calculate it?

A firm uses the profitability index to select between two mutually exclusive investments.If no capital rationing has been imposed,which project should be selected?

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:

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

The acceptance of an investment project implies that: Its IRR is greater than 15 percent. Its NPV is greater than its IRR. Its NPV is greater than 0.

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

Gordon Corporation is considering a 30 year project.The present value of all future cash flows from the project is $825,000.Its initial investment is $475,000.Calculate the Profitability Index on this project.

The use of NPV as an investment criterion is said to be more reliable than using IRR.Discuss potential problems with the use of IRR,and how to reconcile the two methods' results.

Which of the following statements is most likely correct for a project costing $50,000 and returning $14,000 per year for five years?

A polisher costs $10,000 and will cost $20,000 a year to operate and maintain.If the discount rate is 10 percent and the polisher will last for 5 years,what is the equivalent annual cost of the tool?

What happens to the equivalent annual cost of a project as the opportunity cost of capital decreases?

Soft capital rationing is imposed upon a firm from _____ sources,while hard capital rationing is imposed from _____ sources.

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?

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 and Payout 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

What is the NPV for the following project cash flows at a discount rate of 15 percent? CF₀ = ($1,000),CF₁ = $700,CF₂ = $700.

Soft capital rationing is imposed upon a firm from _ sources,while hard capital rationing is imposed from _ sources.