Exam 8: Net Present Value and Other Investment Criteria

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Evaluate the following mutually exclusive projects using IRR as a selection criterion. Assuming a discount rate of 14%, which project-if either-would be selected? Project A costs $50,000 and returns $15,000 after-tax annually. Project B costs $35,000 and returns $11,000 after-tax annually. Both projects have a 5-year life.

(Essay)

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Question 101

When you are considering whether to replace an aging machine with a new one, you should compare the annual cost of operating the old one with the equivalent annual annuity of the new one.

(True/False)

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Question 102

Spending $40,000 on a new truck would increase delivery revenues by $18,000 annually over the truck's 4-year life. Graph the relationship between NPV and the discount rate for this project. (Hint: Assume for simplicity that the relationship is linear and find two points on the line's graph.) Is this project acceptable at a discount rate of 16%? What is the highest discount rate at which this project is acceptable?

(Essay)

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Question 103

Which one of the following changes will increase the NPV of a project?

(Multiple Choice)

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Question 104

The ratio of net present value to initial investment is known as the:

(Multiple Choice)

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Question 105

A project can have as many different internal rates of return as it has:

(Multiple Choice)

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Question 106

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

(Multiple Choice)

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Question 107

Because of deficiencies associated with the payback method, it is seldom used in corporate financial analysis today.

(True/False)

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Question 108

Evaluate the following project using an IRR criterion, based on an opportunity cost of 10%: C₀ = -$6,000, C₁ = $3,300, C₂ = $3,300.

(Multiple Choice)

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Question 109

For mutually exclusive projects, the IRR can be used to select the best project:

(Multiple Choice)

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Question 110

What is the decision rule in the case of sign changes that produce multiple IRRs for a project?

(Multiple Choice)

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Question 111

For many firms the limits on capital funds are "soft." By this we mean that the capital rationing is not imposed by investors.

(True/False)

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Question 112

Which one of the following should be assumed about a project that requires a $100,000 investment at time zero, then returns $20,000 annually for 5 years?

(Multiple Choice)

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Question 113

For mutually exclusive projects, the project with the higher IRR is the correct selection.

(True/False)

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Question 114

Which of the following investment decision rules tends to improperly reject long-lived projects?

(Multiple Choice)

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Question 115

Showing 101 - 115 of 115

When you are considering whether to replace an aging machine with a new one, you should compare the annual cost of operating the old one with the equivalent annual annuity of the new one.

Which one of the following changes will increase the NPV of a project?

The ratio of net present value to initial investment is known as the:

A project can have as many different internal rates of return as it has:

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

Because of deficiencies associated with the payback method, it is seldom used in corporate financial analysis today.

Evaluate the following project using an IRR criterion, based on an opportunity cost of 10%: C₀ = -$6,000, C₁ = $3,300, C₂ = $3,300.

For mutually exclusive projects, the IRR can be used to select the best project:

What is the decision rule in the case of sign changes that produce multiple IRRs for a project?

For many firms the limits on capital funds are "soft." By this we mean that the capital rationing is not imposed by investors.

Which one of the following should be assumed about a project that requires a $100,000 investment at time zero, then returns $20,000 annually for 5 years?

For mutually exclusive projects, the project with the higher IRR is the correct selection.

Which of the following investment decision rules tends to improperly reject long-lived projects?

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters

Exam 8: Net Present Value and Other Investment Criteria

When you are considering whether to replace an aging machine with a new one, you should compare the annual cost of operating the old one with the equivalent annual annuity of the new one.

Which one of the following changes will increase the NPV of a project?

The ratio of net present value to initial investment is known as the:

A project can have as many different internal rates of return as it has:

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

Because of deficiencies associated with the payback method, it is seldom used in corporate financial analysis today.

Evaluate the following project using an IRR criterion, based on an opportunity cost of 10%: C0 = -$6,000, C1 = $3,300, C2 = $3,300.

For mutually exclusive projects, the IRR can be used to select the best project:

What is the decision rule in the case of sign changes that produce multiple IRRs for a project?

For many firms the limits on capital funds are "soft." By this we mean that the capital rationing is not imposed by investors.

Which one of the following should be assumed about a project that requires a $100,000 investment at time zero, then returns $20,000 annually for 5 years?

For mutually exclusive projects, the project with the higher IRR is the correct selection.

Which of the following investment decision rules tends to improperly reject long-lived projects?

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters

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

Evaluate the following project using an IRR criterion, based on an opportunity cost of 10%: C₀ = -$6,000, C₁ = $3,300, C₂ = $3,300.