Question 1

Economic value added is the most widely used form of project evaluation.

Accepted Answer

A) True 
 B)False

Question 2

A weakness of the payback method of project evaluation is that it:

Accepted Answer

A) fails to take account of the magnitude and timing of the cash flows. 
B) rejects all projects with a payback period greater than the maximum payback period. 
C) rejects all projects with a payback period less than the maximum payback period. 
D) fails to take account of the timing of cash flows,but does take into account the magnitude of cash flows. 
A) fails to take account of the magnitude and timing of the cash flows. 
B) rejects all projects with a payback period greater than the maximum payback period. 
C) rejects all projects with a payback period less than the maximum payback period. 
D) fails to take account of the timing of cash flows,but does take into account the magnitude of cash flows.

Question 3

The benefit-cost ratio is calculated by dividing the present value of the future net cash flows by the ________________.

Accepted Answer

initial ca

Question 4

Project K has a cost of $52 125 and its expected net cash flows are $12 000 p.a.for eight years.If the required rate of return is 12% p.a. ,what is the net present value?

Accepted Answer

A) $38 307 
B) $7486 
C) ($7486) 
D) ($38 307) 
A) $38 307 
B) $7486 
C) ($7486) 
D) ($38 307)

Question 5

Which of the following statements is false?

Accepted Answer

A) Accepting a project with an internal rate of return greater than the required rate of return should result in an increase in a firm's share price. 
B) Accepting a project with an internal rate of return greater than the required rate of return should result in a positive net present value. 
C) Accepting a project with an internal rate of return less than the required rate of return should result in a negative net present value. 
D) Accepting a project with an internal rate of return equal to the required rate of return should result in an increase in a firm's share price. 
A) Accepting a project with an internal rate of return greater than the required rate of return should result in an increase in a firm's share price. 
B) Accepting a project with an internal rate of return greater than the required rate of return should result in a positive net present value. 
C) Accepting a project with an internal rate of return less than the required rate of return should result in a negative net present value. 
D) Accepting a project with an internal rate of return equal to the required rate of return should result in an increase in a firm's share price.

Question 6

A weakness with the accounting rate of return is that it:

Accepted Answer

A) does not provide an indication of the risk of a project. 
B) is based on accounting earnings rather than cash flows. 
C) ignores the timing of earnings. 
D) All of the given answers are weaknesses. 
A) does not provide an indication of the risk of a project. 
B) is based on accounting earnings rather than cash flows. 
C) ignores the timing of earnings. 
D) All of the given answers are weaknesses.

Question 7

Assuming that cash flows are received evenly throughout the year,what is the payback period for a project with an initial outlay of $15 000 and cash flows of $4000 p.a.for the next five years?

Accepted Answer

A) 5 years. 
B) 3 years. 
C) 3.75 years. 
D) 4 years. 
A) 5 years. 
B) 3 years. 
C) 3.75 years. 
D) 4 years.

Question 8

The number of internal rates of return is:

Accepted Answer

A) not affected by the magnitude of cash flows. 
B) not limited to the number of sign reversals in the cash flow stream. 
C) limited to the number of sign reversals in the cash flow stream. 
D) limited by the life of the investment. 
A) not affected by the magnitude of cash flows. 
B) not limited to the number of sign reversals in the cash flow stream. 
C) limited to the number of sign reversals in the cash flow stream. 
D) limited by the life of the investment.

Question 9

Consider the following data:  
Using the average investment,the accounting rate of return is:

Accepted Answer

A) 45% 
B) 42.9% 
C) 28.6% 
D) 57.1% 
A) 45% 
B) 42.9% 
C) 28.6% 
D) 57.1%

Question 10

An investment of $1000 is expected to generate net cash flows of $330 at the end of each of the next four years.The internal rate of return of this project is 12%.

Accepted Answer

A) True 
 B)False

Question 11

The benefit-cost ratio for a project with an initial outlay of $9000 and net cash flows of $5000 p.a.for the next three years and a required rate of return of 10% p.a.is:

Accepted Answer

A) $3434. 
B) 0.3815 
C) 1.21 
D) 1.3815 
A) $3434. 
B) 0.3815 
C) 1.21 
D) 1.3815

Question 12

Which of the following statements concerning capital expenditure is false?

Accepted Answer

A) Capital expenditure involves evaluation and comparison of alternative investment proposals. 
B) Capital expenditure involves budgeting cash flows and the means of financing them. 
C) Capital expenditure involves the generation of investment proposals. 
D) Capital expenditure involves the economic evaluation of a proposal. 
A) Capital expenditure involves evaluation and comparison of alternative investment proposals. 
B) Capital expenditure involves budgeting cash flows and the means of financing them. 
C) Capital expenditure involves the generation of investment proposals. 
D) Capital expenditure involves the economic evaluation of a proposal.

Question 13

If it is feasible to undertake a project irrespective of the decision concerning the acceptance of another,the two projects are said to be:

Accepted Answer

A) independent. 
B) dependent. 
C) mutually exclusive. 
D) none of the given options. 
A) independent. 
B) dependent. 
C) mutually exclusive. 
D) none of the given options.

Question 14

The internal rate of return of a project is the rate of return that equates the present value of its net cash flows with its:

Accepted Answer

A) outflow. 
B) working capital. 
C) initial cash outlay. 
D) required rate of return. 
A) outflow. 
B) working capital. 
C) initial cash outlay. 
D) required rate of return.

Question 15

What is the approximate internal rate of return of a project with a cost of $100 000 that generates cash flows of $40 000 over the next three years?

Accepted Answer

A) 2% 
B) 5% 
C) 9% 
D) 10% 
A) 2% 
B) 5% 
C) 9% 
D) 10%

Question 16

Project B has a cost of $23 956 and its expected net cash flows are $6000 p.a.for the next five years.What is the project's internal rate of return?

Accepted Answer

A) 10% 
B) 8% 
C) 9% 
D) 7% 
A) 10% 
B) 8% 
C) 9% 
D) 7%

Question 17

A company should approve all projects with a ___________ net present value.

Accepted Answer

The answer of A company should approve all projects with...

Question 18

The internal rate of return is the discount rate at which the net present value is equal to ________.

Accepted Answer

The answer of The internal rate of return is the...

Question 19

The problems associated with ranking mutually exclusive projects using the internal rate of return methodology can be overcome by determining the __________ internal rate of return.

Accepted Answer

The answer of The problems associated with ranking mutually exclusive...

Question 20

What is the net present value of a project with a cost of $100 000 that generates cash flows of $40 000 over the next three years,and the required rate of return is 15%?

Accepted Answer

A) $8670 
B) -$8670 
C) $7890 
D) -$5210 
A) $8670 
B) -$8670 
C) $7890 
D) -$5210

Exam 5: Project Evaluation: Principles and Methods

Economic value added is the most widely used form of project evaluation.

A weakness of the payback method of project evaluation is that it:

The benefit-cost ratio is calculated by dividing the present value of the future net cash flows by the ________________.

Project K has a cost of $52 125 and its expected net cash flows are $12 000 p.a.for eight years.If the required rate of return is 12% p.a. ,what is the net present value?

Which of the following statements is false?

A weakness with the accounting rate of return is that it:

Assuming that cash flows are received evenly throughout the year,what is the payback period for a project with an initial outlay of $15 000 and cash flows of $4000 p.a.for the next five years?

The number of internal rates of return is:

Consider the following data: Using the average investment,the accounting rate of return is:

An investment of $1000 is expected to generate net cash flows of $330 at the end of each of the next four years.The internal rate of return of this project is 12%.

The benefit-cost ratio for a project with an initial outlay of $9000 and net cash flows of $5000 p.a.for the next three years and a required rate of return of 10% p.a.is:

Which of the following statements concerning capital expenditure is false?

If it is feasible to undertake a project irrespective of the decision concerning the acceptance of another,the two projects are said to be:

The internal rate of return of a project is the rate of return that equates the present value of its net cash flows with its:

What is the approximate internal rate of return of a project with a cost of $100 000 that generates cash flows of $40 000 over the next three years?

Project B has a cost of $23 956 and its expected net cash flows are $6000 p.a.for the next five years.What is the project's internal rate of return?

A company should approve all projects with a ___________ net present value.

The internal rate of return is the discount rate at which the net present value is equal to ________.

The problems associated with ranking mutually exclusive projects using the internal rate of return methodology can be overcome by determining the __________ internal rate of return.

What is the net present value of a project with a cost of $100 000 that generates cash flows of $40 000 over the next three years,and the required rate of return is 15%?

Introduction

Consumption, Investment and the Capital Market

The Time Value of Money: An Introduction to Financial Mathematics

Applying the Time Value of Money to Security Valuation

The Application of Project Evaluation Methods

Risk and Return

The Capital Market

Sources of Finance: Equity

Sources of Finance: Debt

Payout Policy

Principles of Capital Structure

Capital Structure Decisions

The Cost of Capital and Taxation Issues in Project Evaluation

Leasing and Other Equipment Finance

Capital Market Efficiency

Futures Contracts

Options and Contingent Claims

Analysis of Takeovers

International Financial Management

Management of Short-Term Assets: Inventory

Management of Short-Term Assets: Liquid Assets and Accounts Receivable

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