Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  the NPVs of these projects cross over at some discount rate. 
B)  discounted cash flow is not considered with mutually exclusive projects. 
C)  IRR performs better with accounting returns than with cash flows. 
D) mutually exclusive projects have multiple IRRs 
A)  the NPVs of these projects cross over at some discount rate. 
B)  discounted cash flow is not considered with mutually exclusive projects. 
C)  IRR performs better with accounting returns than with cash flows. 
D) mutually exclusive projects have multiple IRRs

Question 3

A risky dollar is worth more than a safe one.

Accepted Answer

A) True 
 B)False

Question 4

When managers cannot determine whether to invest now or wait until costs decrease later,the rule should be to:

Accepted Answer

A)  postpone until costs reach their lowest. 
B)  invest now to maximize the NPV. 
C)  postpone until the opportunity cost reaches its lowest. 
D) invest at the date that gives the highest NPV today. 
A)  postpone until costs reach their lowest. 
B)  invest now to maximize the NPV. 
C)  postpone until the opportunity cost reaches its lowest. 
D) invest at the date that gives the highest NPV today.

Question 5

The payback period considers all project cash flows.

Accepted Answer

A) True 
 B)False

Question 6

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 7

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%?

Accepted Answer

A)  $20,000.00 
B)  $21,356.95 
C)  $22,618.83 
D) $25,237.66 
A)  $20,000.00 
B)  $21,356.95 
C)  $22,618.83 
D) $25,237.66

Question 8

You can continue to use your less efficient machine at a cost of $8,000 annually for the next 5 years.Alternatively,you can purchase a more efficient machine for $12,000 plus $5,000 annual maintenance.At a cost of capital of 15%,you should:

Accepted Answer

A)  Buy the new machine and save $600 in equivalent annual costs. 
B)  Buy the new machine and save $388 in equivalent annual costs. 
C)  Keep the old machine and save $388 in equivalent annual costs. 
D) Keep the old machine and save $580 in equivalent annual costs. 
A)  Buy the new machine and save $600 in equivalent annual costs. 
B)  Buy the new machine and save $388 in equivalent annual costs. 
C)  Keep the old machine and save $388 in equivalent annual costs. 
D) Keep the old machine and save $580 in equivalent annual costs.

Question 9

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 10

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

Accepted Answer

A)  A decrease in the discount rate 
B)  A decrease in the size of the cash inflows 
C)  An increase in the initial cost of the project 
D)  A decrease in the number of cash inflows 
A)  A decrease in the discount rate 
B)  A decrease in the size of the cash inflows 
C)  An increase in the initial cost of the project 
D)  A decrease in the number of cash inflows

Question 11

The use of a profitability index will always provide results consistent with selecting the project with the:

Accepted Answer

A)  highest NPV. 
B)  highest IRR. 
C)  largest dollar invested per rate of return. 
D) largest return per dollar invested 
A)  highest NPV. 
B)  highest IRR. 
C)  largest dollar invested per rate of return. 
D) largest return per dollar invested

Question 12

A currently used machine costs $10,000 annually to run.What is the maximum that should be paid to replace the machine with one that will last 3 years and cost only $4,000 annually to run? The opportunity cost of capital is 12%.

Accepted Answer

A)  $2,000 
B)  $9,607 
C)  $14,411 
D) $24,018 
A)  $2,000 
B)  $9,607 
C)  $14,411 
D) $24,018

Question 13

How is the internal rate of return of a project calculated and what must you look out for when using the internal rate of return rule?

Accepted Answer

Instead of asking whether a project has

Question 14

Which of the following statements is most likely correct for a project costing $50,000 and returning $14,000 per year for 5 years?

Accepted Answer

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

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

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

A risky dollar is worth more than a safe one.

When managers cannot determine whether to invest now or wait until costs decrease later,the rule should be to:

The payback period considers all project cash flows.

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

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%?

You can continue to use your less efficient machine at a cost of $8,000 annually for the next 5 years.Alternatively,you can purchase a more efficient machine for $12,000 plus $5,000 annual maintenance.At a cost of capital of 15%,you should:

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

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

The use of a profitability index will always provide results consistent with selecting the project with the:

A currently used machine costs $10,000 annually to run.What is the maximum that should be paid to replace the machine with one that will last 3 years and cost only $4,000 annually to run? The opportunity cost of capital is 12%.

How is the internal rate of return of a project calculated and what must you look out for when using the internal rate of return rule?

Which of the following statements is most likely correct for a project costing $50,000 and returning $14,000 per year for 5 years?

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

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters

Exam 8: Net Present Value and Other Investment Criteria

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

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

A risky dollar is worth more than a safe one.

When managers cannot determine whether to invest now or wait until costs decrease later,the rule should be to:

The payback period considers all project cash flows.

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

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%?

You can continue to use your less efficient machine at a cost of $8,000 annually for the next 5 years.Alternatively,you can purchase a more efficient machine for $12,000 plus $5,000 annual maintenance.At a cost of capital of 15%,you should:

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

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

The use of a profitability index will always provide results consistent with selecting the project with the:

A currently used machine costs $10,000 annually to run.What is the maximum that should be paid to replace the machine with one that will last 3 years and cost only $4,000 annually to run? The opportunity cost of capital is 12%.

How is the internal rate of return of a project calculated and what must you look out for when using the internal rate of return rule?

Which of the following statements is most likely correct for a project costing $50,000 and returning $14,000 per year for 5 years?

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

Risk, Return, and Capital Budgeting

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.