Question 1

Use the discounted 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 2

These are groups or pairs of projects where you can accept one but not all.

Accepted Answer

A)  dependent 
B)  independent 
C)  mutually exclusive 
D)  mutually dependent 
A)  dependent 
B)  independent 
C)  mutually exclusive 
D)  mutually dependent

Question 3

Compute the MIRR statistic for Project I and note whether to accept or reject the project with the cash flows shown below if the appropriate cost of capital is 15 percent. Project I

Accepted Answer

A)  The project's MIRR is 10.29% and the project should be rejected. 
B)  The project's MIRR is 12.67% and the project should be rejected. 
C)  The project's MIRR is 17.17% and the project should be accepted. 
D)  The project's MIRR is 18.19% and the project should be accepteD.Cash flows will be moved as shown below: 
A)  The project's MIRR is 10.29% and the project should be rejected. 
B)  The project's MIRR is 12.67% and the project should be rejected. 
C)  The project's MIRR is 17.17% and the project should be accepted. 
D)  The project's MIRR is 18.19% and the project should be accepteD.Cash flows will be moved as shown below:

Question 4

Compute the Payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent and the maximum allowable payback is 5 years.

Accepted Answer

A)  3.67 years, accept 
B)  4.67 years, accept 
C)  3.67 years, reject 
D)  4.67 years, reject 
A)  3.67 years, accept 
B)  4.67 years, accept 
C)  3.67 years, reject 
D)  4.67 years, reject

Question 5

All of the following capital budgeting tools are suitable for non-normal cash flows except ____.

Accepted Answer

A)  MIRR 
B)  Profitability Index 
C)  IRR 
D)  NPV 
A)  MIRR 
B)  Profitability Index 
C)  IRR 
D)  NPV

Question 6

Which of the following is incorrect regarding the IRR statistic?

Accepted Answer

A)  For independent projects, IRR will give the same accept/reject decision as NPV. 
B)  For the IRR statistic to give a different accept/reject decision from NPV, the cash flows must be non-normal and the projects must be mutually exclusive. 
C)  To solve for the IRR, one can simply solve the NPV formula for the rate that will make the NPV equal to zero. 
D)  None of these statements is incorrect. 
A)  For independent projects, IRR will give the same accept/reject decision as NPV. 
B)  For the IRR statistic to give a different accept/reject decision from NPV, the cash flows must be non-normal and the projects must be mutually exclusive. 
C)  To solve for the IRR, one can simply solve the NPV formula for the rate that will make the NPV equal to zero. 
D)  None of these statements is incorrect.

Question 7

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

Accepted Answer

A)  -.39%, reject 
B)  .39%, accept 
C)  -38.88%, reject 
D)  38.88%, accept 
A)  -.39%, reject 
B)  .39%, accept 
C)  -38.88%, reject 
D)  38.88%, accept

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 = 4.29 years; accept the project 
B)  Discounted payback = 3.97 years; accept the project 
C)  Discounted payback > 4.5 years; reject the project 
D)  Discounted payback = 4.4 years; accept the project 
A)  Discounted payback = 4.29 years; accept the project 
B)  Discounted payback = 3.97 years; accept the project 
C)  Discounted payback > 4.5 years; reject the project 
D)  Discounted payback = 4.4 years; accept the project

Question 9

Which of the following best describes the NPV profile?

Accepted Answer

A)  A graph of a project's NPV as a function of possible IRRs. 
B)  A graph of a project's NPV over time. 
C)  A graph of a project's NPV as a function of possible capital costs. 
D)  None of these statements is correct. 
A)  A graph of a project's NPV as a function of possible IRRs. 
B)  A graph of a project's NPV over time. 
C)  A graph of a project's NPV as a function of possible capital costs. 
D)  None of these statements is correct.

Question 10

Why is a project's cost not an appropriate benchmark for its NPV?

Accepted Answer

Because the NPV has

Question 11

Suppose you have a project whose discounted payback is equal to its termination date. What can you say for sure about its PI?

Accepted Answer

A)  The discounted payback will be greater than zero. 
B)  It will have a PI and NPV of zero. 
C)  The NPV and IRR will yield the same decision. 
D)  The IRR will just equal the cost of capital. 
A)  The discounted payback will be greater than zero. 
B)  It will have a PI and NPV of zero. 
C)  The NPV and IRR will yield the same decision. 
D)  The IRR will just equal the cost of capital.

Question 12

All of the following capital budgeting tools are suitable for firms facing time constraints except ______.

Accepted Answer

A)  NPV 
B)  Payback 
C)  Discounted payback 
D)  All of these answers are suitable for firms facing time constraints. 
A)  NPV 
B)  Payback 
C)  Discounted payback 
D)  All of these answers are suitable for firms facing time constraints.

Question 13

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

Accepted Answer

A)  .23 years, accept 
B)  1.77 years, accept 
C)  2 years, accept 
D)  4.33 years, reject 
A)  .23 years, accept 
B)  1.77 years, accept 
C)  2 years, accept 
D)  4.33 years, reject

Question 14

Neither payback period nor discounted payback period techniques for evaluating capital projects account for

Accepted Answer

A)  time value of money. 
B)  market rates of return. 
C)  cash flows that occur after payback. 
D)  cash flows that occur during payback. 
A)  time value of money. 
B)  market rates of return. 
C)  cash flows that occur after payback. 
D)  cash flows that occur during payback.

Question 15

Which rate-based decision statistic measures the excess return (the amount above and beyond the cost of capital for a project), rather than the gross return?

Accepted Answer

A)  Internal Rate of Return, IRR 
B)  Modified Internal Rate of Return, MIRR 
C)  Profitability Index, PI 
D)  Net Present Value, NPV 
A)  Internal Rate of Return, IRR 
B)  Modified Internal Rate of Return, MIRR 
C)  Profitability Index, PI 
D)  Net Present Value, NPV

Question 16

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 is referred to as ______________.

Accepted Answer

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

Question 17

Compute the IRR for Project X and note whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 9 percent.

Accepted Answer

A)  9%, accept 
B)  9%, reject 
C)  16.61%, accept 
D)  16.61%, reject 
A)  9%, accept 
B)  9%, reject 
C)  16.61%, accept 
D)  16.61%, reject

Question 18

A capital budgeting method that converts a project's cash flows using a more consistent reinvestment rate prior to applying the IRR decision rule is referred to as ______________.

Accepted Answer

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

Question 19

Use the discounted 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 20

All of the following capital budgeting tools are suitable for non-normal cash flows except ____.

Accepted Answer

A)  MIRR 
B)  Profitability Index 
C)  Discounted Payback 
D)  NPV 
A)  MIRR 
B)  Profitability Index 
C)  Discounted Payback 
D)  NPV

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

These are groups or pairs of projects where you can accept one but not all.

Compute the MIRR statistic for Project I and note whether to accept or reject the project with the cash flows shown below if the appropriate cost of capital is 15 percent. Project I

Compute the Payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent and the maximum allowable payback is 5 years.

All of the following capital budgeting tools are suitable for non-normal cash flows except ____.

Which of the following is incorrect regarding the IRR statistic?

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

Which of the following best describes the NPV profile?

Why is a project's cost not an appropriate benchmark for its NPV?

Suppose you have a project whose discounted payback is equal to its termination date. What can you say for sure about its PI?

All of the following capital budgeting tools are suitable for firms facing time constraints except ______.

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

Neither payback period nor discounted payback period techniques for evaluating capital projects account for

Which rate-based decision statistic measures the excess return (the amount above and beyond the cost of capital for a project), rather than the gross return?

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 is referred to as ______________.

Compute the IRR for Project X and note whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 9 percent.

A capital budgeting method that converts a project's cash flows using a more consistent reinvestment rate prior to applying the IRR decision rule is referred to as ______________.

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

All of the following capital budgeting tools are suitable for non-normal cash flows except ____.

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

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

These are groups or pairs of projects where you can accept one but not all.

Compute the MIRR statistic for Project I and note whether to accept or reject the project with the cash flows shown below if the appropriate cost of capital is 15 percent. Project I

Compute the Payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent and the maximum allowable payback is 5 years.

All of the following capital budgeting tools are suitable for non-normal cash flows except ____.

Which of the following is incorrect regarding the IRR statistic?

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

Which of the following best describes the NPV profile?

Why is a project's cost not an appropriate benchmark for its NPV?

Suppose you have a project whose discounted payback is equal to its termination date. What can you say for sure about its PI?

All of the following capital budgeting tools are suitable for firms facing time constraints except ______.

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

Neither payback period nor discounted payback period techniques for evaluating capital projects account for

Which rate-based decision statistic measures the excess return (the amount above and beyond the cost of capital for a project), rather than the gross return?

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 is referred to as ______________.

Compute the IRR for Project X and note whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 9 percent.

A capital budgeting method that converts a project's cash flows using a more consistent reinvestment rate prior to applying the IRR decision rule is referred to as ______________.

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

All of the following capital budgeting tools are suitable for non-normal cash flows except ____.

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