Question 1

How many possible IRRs could you find for the following set of cash flows?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4 B

Question 2

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Use the MIRR decision to evaluate this project; should it be accepted or rejected?

Accepted Answer

A)  MIRR = 11.59%; accept the project 
B)  MIRR = 9.21%; reject the project 
C)  MIRR = 7.19%; reject the project 
D)  MIRR = 10.58%; accept the project 
A)  MIRR = 11.59%; accept the project 
B)  MIRR = 9.21%; reject the project 
C)  MIRR = 7.19%; reject the project 
D)  MIRR = 10.58%; accept the project B

Question 3

A company is considering two mutually exclusive projects, A and B. Project A requires an initial investment of $100, followed by cash flows of $95, $20 and $5. Project B requires an initial investment of $100, followed by cash flows of $0, $20 and $130. What is the IRR of the project that is best for the company's shareholders? The firm's cost of capital is 10%.

Accepted Answer

A)  15.24% 
B)  15.96% 
C)  16.17% 
D)  15.42% 
A)  15.24% 
B)  15.96% 
C)  16.17% 
D)  15.42% A

Question 4

The least-used capital budgeting technique in industry is ____________.

Accepted Answer

A)  NPV 
B)  IRR 
C)  Payback 
D)  MIRR 
A)  NPV 
B)  IRR 
C)  Payback 
D)  MIRR

Question 5

All of the following are strengths of NPV except _______________.

Accepted Answer

A)  It works equally well for independent and mutually exclusive projects 
B)  Managers have a preference for using a statistic that is in percent instead of dollars 
C)  It uses a conservative reinvestment rate assumption 
D)  These are all strengths of the NPV statistic 
A)  It works equally well for independent and mutually exclusive projects 
B)  Managers have a preference for using a statistic that is in percent instead of dollars 
C)  It uses a conservative reinvestment rate assumption 
D)  These are all strengths of the NPV statistic

Question 6

The benchmark for the Profitability Index, PI, is the

Accepted Answer

A)  cost of capital 
B)  managers' maximum number of years 
C)  zero or anything larger than zero 
D)  zero or anything less than zero 
A)  cost of capital 
B)  managers' maximum number of years 
C)  zero or anything larger than zero 
D)  zero or anything less than zero

Question 7

Use the payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

Accepted Answer

A)  accept both A and B 
B)  accept neither A nor B 
C)  accept A, reject B 
D)  reject A, accept B 
A)  accept both A and B 
B)  accept neither A nor B 
C)  accept A, reject B 
D)  reject A, accept B

Question 8

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Use the discounted payback decision to evaluate this project; should it be accepted or rejected?

Accepted Answer

A)  Discounted payback = 4.25 years; accept the project 
B)  Discounted payback = 3.50 years; accept the project 
C)  Discounted payback > 5 years; reject the project 
D)  Discounted payback = 4.67 years; reject the project 
A)  Discounted payback = 4.25 years; accept the project 
B)  Discounted payback = 3.50 years; accept the project 
C)  Discounted payback > 5 years; reject the project 
D)  Discounted payback = 4.67 years; reject the project

Question 9

Suppose two projects with normal cash flows, X and Y, have exactly the same required initial investment, but X has a longer payback. Can we say anything about X's IRR versus that of Y?

Accepted Answer

The project with the longer pa

Question 10

Use the payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

Accepted Answer

A)  accept both A and B 
B)  accept neither A nor B 
C)  accept A, reject B 
D)  reject A, accept B 
A)  accept both A and B 
B)  accept neither A nor B 
C)  accept A, reject B 
D)  reject A, accept B

Question 11

Compute the MIRR statistic for Project J and advise whether to accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent. Project J

Accepted Answer

A)  The project's MIRR is 14.77% and the project should be accepted. 
B)  The project's MIRR is 9.29% and the project should be rejected. 
C)  The project's MIRR is 13.76% and the project should be accepted. 
D)  The project's MIRR is 15.31% and the project should be accepteD.   
A)  The project's MIRR is 14.77% and the project should be accepted. 
B)  The project's MIRR is 9.29% and the project should be rejected. 
C)  The project's MIRR is 13.76% and the project should be accepted. 
D)  The project's MIRR is 15.31% and the project should be accepteD.

Question 12

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Use the MIRR decision to evaluate this project; should it be accepted or rejected?

Accepted Answer

A)  MIRR = 13.59%; accept the project 
B)  MIRR = 7.96%; reject the project 
C)  MIRR = 7.19%; reject the project 
D)  MIRR = 12.58%; accept the project 
A)  MIRR = 13.59%; accept the project 
B)  MIRR = 7.96%; reject the project 
C)  MIRR = 7.19%; reject the project 
D)  MIRR = 12.58%; accept the project

Question 13

A project's IRR ____________________.

Accepted Answer

A)  is the average rate of return necessary to pay back the project's capital providers 
B)  will change with the cost of capital 
C)  is equal to the discounted cash flows divided by the number of cash flows if the cash flows are a perpetuity 
D)  All of these answers are correct. 
A)  is the average rate of return necessary to pay back the project's capital providers 
B)  will change with the cost of capital 
C)  is equal to the discounted cash flows divided by the number of cash flows if the cash flows are a perpetuity 
D)  All of these answers are correct.

Question 14

We accept projects with a positive NPV because it means that ____________.

Accepted Answer

A)  We have recovered all our costs 
B)  We are creating wealth for shareholders 
C)  The project's expected return exceeds the cost of capital 
D)  All of these 
A)  We have recovered all our costs 
B)  We are creating wealth for shareholders 
C)  The project's expected return exceeds the cost of capital 
D)  All of these

Question 15

Use the NPV decision rule to evaluate these projects; which one(s) should be accepted or rejected?

Accepted Answer

A)  accept both A and B 
B)  accept neither A nor B 
C)  accept A, reject B 
D)  reject A, accept B 
A)  accept both A and B 
B)  accept neither A nor B 
C)  accept A, reject B 
D)  reject A, accept B

Question 16

Projects A and B are mutually exclusive. Project A costs $20,000 and is expected to generate cash inflows of $7,500 for 4 years. Project B costs $10,000 and is expected to generate a single cash flow in year 4 of $20,000. The cost of capital is 12%. Which project would you accept and why?

Accepted Answer

A)  Project B because it has the higher NPV. 
B)  Project B because it has the higher IRR. 
C)  Project A because it has the higher NPV. 
D)  Project A because it has the higher IRR. 
A)  Project B because it has the higher NPV. 
B)  Project B because it has the higher IRR. 
C)  Project A because it has the higher NPV. 
D)  Project A because it has the higher IRR.

Question 17

Compute the PI statistic for Project Z and advise the firm whether to accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent. Project Z

Accepted Answer

A)  The project's PI is 8.48% and the project should be accepted. 
B)  The project's PI is 8.48% and the project should be rejected. 
C)  The project's PI is 16.48% and the project should be accepted. 
D)  The project's PI is 21.48% and the project should be accepteD.Step 1: Find NPV using financial calculator: NPV = 214.78; Step 2: 214.78/1000 = 21.48% and since PI>0 accept. 
A)  The project's PI is 8.48% and the project should be accepted. 
B)  The project's PI is 8.48% and the project should be rejected. 
C)  The project's PI is 16.48% and the project should be accepted. 
D)  The project's PI is 21.48% and the project should be accepteD.Step 1: Find NPV using financial calculator: NPV = 214.78; Step 2: 214.78/1000 = 21.48% and since PI>0 accept.

Question 18

Use the MIRR decision rule to evaluate this project; should it be accepted or rejected?

Accepted Answer

A)  12.00%, reject 
B)  31.21%, accept 
C)  54.22%, accept 
D)  80.67%, accept 
A)  12.00%, reject 
B)  31.21%, accept 
C)  54.22%, accept 
D)  80.67%, accept

Question 19

All capital budgeting techniques

Accepted Answer

A)  render the same investment decision. 
B)  use the same measurement units. 
C)  include all crucial information. 
D)  exclude some crucial information. 
A)  render the same investment decision. 
B)  use the same measurement units. 
C)  include all crucial information. 
D)  exclude some crucial information.

Question 20

A capital budgeting technique that generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flows.

Accepted Answer

A)  discounted payback 
B)  net present value 
C)  internal rate of return 
D)  profitability index 
A)  discounted payback 
B)  net present value 
C)  internal rate of return 
D)  profitability index

How many possible IRRs could you find for the following set of cash flows?

The least-used capital budgeting technique in industry is ____________.

All of the following are strengths of NPV except _______________.

The benchmark for the Profitability Index, PI, is the

Use the payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

Suppose two projects with normal cash flows, X and Y, have exactly the same required initial investment, but X has a longer payback. Can we say anything about X's IRR versus that of Y?

Use the payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

Compute the MIRR statistic for Project J and advise whether to accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent. Project J

A project's IRR ____________________.

We accept projects with a positive NPV because it means that ____________.

Use the NPV decision rule to evaluate these projects; which one(s) should be accepted or rejected?

Projects A and B are mutually exclusive. Project A costs $20,000 and is expected to generate cash inflows of $7,500 for 4 years. Project B costs $10,000 and is expected to generate a single cash flow in year 4 of $20,000. The cost of capital is 12%. Which project would you accept and why?

Compute the PI statistic for Project Z and advise the firm whether to accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent. Project Z

Use the MIRR decision rule to evaluate this project; should it be accepted or rejected?

All capital budgeting techniques

A capital budgeting technique that generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flows.

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 13: Weighing Net Present Value and Other Capital Budgeting Criteria

How many possible IRRs could you find for the following set of cash flows?

The least-used capital budgeting technique in industry is ____________.

All of the following are strengths of NPV except _______________.

The benchmark for the Profitability Index, PI, is the

Use the payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

Suppose two projects with normal cash flows, X and Y, have exactly the same required initial investment, but X has a longer payback. Can we say anything about X's IRR versus that of Y?

Use the payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

Compute the MIRR statistic for Project J and advise whether to accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent. Project J

A project's IRR ____________________.

We accept projects with a positive NPV because it means that ____________.

Use the NPV decision rule to evaluate these projects; which one(s) should be accepted or rejected?

Projects A and B are mutually exclusive. Project A costs $20,000 and is expected to generate cash inflows of $7,500 for 4 years. Project B costs $10,000 and is expected to generate a single cash flow in year 4 of $20,000. The cost of capital is 12%. Which project would you accept and why?

Compute the PI statistic for Project Z and advise the firm whether to accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent. Project Z

Use the MIRR decision rule to evaluate this project; should it be accepted or rejected?

All capital budgeting techniques

A capital budgeting technique that generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flows.

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters