Question 1

Based on the net present value method of analysis and given the information in the problem,you should:

Accepted Answer

A) accept both project A and project B. 
B) accept project A and reject project B. 
C) accept project B and reject project A. 
D) reject both project A and project B. 
E) accept whichever one you want as they represent equal opportunities. 
A) accept both project A and project B. 
B) accept project A and reject project B. 
C) accept project B and reject project A. 
D) reject both project A and project B. 
E) accept whichever one you want as they represent equal opportunities. C

Question 2

The discounted payback period rule:

Accepted Answer

A) discounts the cutoff point. 
B) considers the time value of money. 
C) is preferred to the NPV rule. 
D) ignores uncertain cash flows. 
E) None of the above. 
A) discounts the cutoff point. 
B) considers the time value of money. 
C) is preferred to the NPV rule. 
D) ignores uncertain cash flows. 
E) None of the above. B

Question 3

Martin is analyzing a project and has gathered the following data.Based on this data,what is the average accounting rate of return? The firm depreciates it assets using straight-line depreciation to a zero book value over the life of the asset.Assume there are no additional costs after Year 0.

Accepted Answer

A) 8.08% 
B) 10.77% 
C) 21.83% 
D) 26.17% 
E) 31.54% 
A) 8.08% 
B) 10.77% 
C) 21.83% 
D) 26.17% 
E) 31.54% B

Question 4

When two projects both require the total use of the same limited economic resource,the projects are generally considered to be:

Accepted Answer

A) marginally profitable. 
B) independent. 
C) acceptable. 
D) mutually exclusive. 
E) internally profitable. 
A) marginally profitable. 
B) independent. 
C) acceptable. 
D) mutually exclusive. 
E) internally profitable.

Question 5

The profitability index is closely related to:

Accepted Answer

A) payback. 
B) discounted payback. 
C) net present value. 
D) average accounting return. 
E) internal rate of return. 
A) payback. 
B) discounted payback. 
C) net present value. 
D) average accounting return. 
E) internal rate of return.

Question 6

Which of the following does not characterize NPV?

Accepted Answer

A) NPV discounts all future cash flows. 
B) NPV incorporates all cash flow information. 
C) NPV uses all of the project's cash flows. 
D) NPV does not explicitly incorporate risk into the analysis. 
E) Using NPV will lead to decisions that maximize shareholder wealth. 
A) NPV discounts all future cash flows. 
B) NPV incorporates all cash flow information. 
C) NPV uses all of the project's cash flows. 
D) NPV does not explicitly incorporate risk into the analysis. 
E) Using NPV will lead to decisions that maximize shareholder wealth.

Question 7

The Liberty Co.is considering two projects.Project A consists of building a wholesale book outlet on lot #169 of the Englewood Retail Center.Project B consists of building a sit-down restaurant on lot #169 of the Englewood Retail Center.When trying to decide whether to build the book outlet or the restaurant,management should rely most heavily on the analysis results from the _____ method of analysis.

Accepted Answer

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

Question 8

What is the internal rate of return on an investment with the following cash flows?

Accepted Answer

A) 7.93% 
B) 7.96% 
C) 8.04% 
D) 8.09% 
E) 9.07% 
A) 7.93% 
B) 7.96% 
C) 8.04% 
D) 8.09% 
E) 9.07%

Question 9

The Winston Co.is considering two mutually exclusive projects with the following cash flows.The incremental IRR is _____ and if the required rate is higher than the crossover rate then project _____ should be accepted.

Accepted Answer

A) 13.94%; A 
B) 13.94%; B 
C) 15.44%; A 
D) 15.44%; B 
E) 15.86%; A 
A) 13.94%; A 
B) 13.94%; B 
C) 15.44%; A 
D) 15.44%; B 
E) 15.86%; A

Question 10

Based on the payback period of ____ for this project,you should _____ the project.

Accepted Answer

A) 1.87 years; accept 
B) 2.40 years; accept 
C) 2.87 years; reject 
D) 3.13 years; reject 
E) 3.87 years; reject 
A) 1.87 years; accept 
B) 2.40 years; accept 
C) 2.87 years; reject 
D) 3.13 years; reject 
E) 3.87 years; reject

Question 11

In actual practice,managers frequently use the:
I.AAR because the necessary accounting numbers are readily available.
II.IRR because the results are easy to communicate and understand.
III.payback because of its simplicity.
IV.net present value because it is considered by many to be the best method of analysis.

Accepted Answer

A) I and III only 
B) II and III only 
C) I, III, and IV only 
D) II, III, and IV only 
E) I, II, III, and IV 
A) I and III only 
B) II and III only 
C) I, III, and IV only 
D) II, III, and IV only 
E) I, II, III, and IV

Question 12

Based on the net present value of ____ for this project,you should _____ the project.

Accepted Answer

A) -$2,021.28; reject 
B) -$406.19; reject 
C) $7,978.72; accept 
D) $9,836.74; accept 
E) $23,356.61 accept 
A) -$2,021.28; reject 
B) -$406.19; reject 
C) $7,978.72; accept 
D) $9,836.74; accept 
E) $23,356.61 accept

Question 13

The discounted payback period of a project will decrease whenever the:

Accepted Answer

A) initial cash outlay of the project is increased. 
B) discount rate applied to the project is increased. 
C) amount of each projected cash inflow is increased. 
D) time period of the project is increased. 
E) costs of the fixed assets utilized in the project increase. 
A) initial cash outlay of the project is increased. 
B) discount rate applied to the project is increased. 
C) amount of each projected cash inflow is increased. 
D) time period of the project is increased. 
E) costs of the fixed assets utilized in the project increase.

Question 14

The primary reason that a company's projects with positive net present values are considered acceptable is that:

Accepted Answer

A) the required cash inflows exceed the actual cash inflows. 
B) they return the initial cash outlay within three years or less. 
C) the project's rate of return exceeds the rate of inflation. 
D) they create value for the owners of the firm. 
E) the investment's cost exceeds the present value of the cash inflows. 
A) the required cash inflows exceed the actual cash inflows. 
B) they return the initial cash outlay within three years or less. 
C) the project's rate of return exceeds the rate of inflation. 
D) they create value for the owners of the firm. 
E) the investment's cost exceeds the present value of the cash inflows.

Question 15

Based upon the payback period and the information provided in the problem,you should:

Accepted Answer

A) accept both project A and project B. 
B) reject both project A and project B. 
C) accept project A and reject project B. 
D) accept project B and reject project A. 
E) require that management extend the payback period for project A since it has a higher initial cost 
A) accept both project A and project B. 
B) reject both project A and project B. 
C) accept project A and reject project B. 
D) accept project B and reject project A. 
E) require that management extend the payback period for project A since it has a higher initial cost

Question 16

You are considering an investment with the following cash flows.If the required rate of return for this investment is 13.5%,should you accept it based solely on the internal rate of return rule? Why or why not?

Accepted Answer

A) Yes; because the IRR exceeds the required return 
B) Yes; because the IRR is a positive rate of return 
C) No; because the IRR is less than the required return 
D) No; because the IRR is a negative rate of return 
E) You can not apply the IRR rule in this case because there are multiple IRRs. 
A) Yes; because the IRR exceeds the required return 
B) Yes; because the IRR is a positive rate of return 
C) No; because the IRR is less than the required return 
D) No; because the IRR is a negative rate of return 
E) You can not apply the IRR rule in this case because there are multiple IRRs.

Question 17

The problem of multiple IRRs can occur when:

Accepted Answer

A) there is only one sign change in the cash flows. 
B) the first cash flow is always positive. 
C) the cash flows decline over the life of the project. 
D) there is more than one sign change in the cash flows. 
E) None of the above. 
A) there is only one sign change in the cash flows. 
B) the first cash flow is always positive. 
C) the cash flows decline over the life of the project. 
D) there is more than one sign change in the cash flows. 
E) None of the above.

Question 18

The internal rate of return (IRR):
I.rule states that a typical investment project with an IRR that is less than the required rate should be accepted.
II.is the rate generated solely by the cash flows of an investment.
III.is the rate that causes the net present value of a project to exactly equal zero.
IV.can effectively be used to analyze all investment scenarios.

Accepted Answer

A) I and IV only 
B) II and III only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV 
A) I and IV only 
B) II and III only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV

Question 19

The internal rate of return for a project will increase if:

Accepted Answer

A) the required rate of return is reduced. 
B) each cash inflow is moved such that it occurs one year later than originally projected. 
C) the total amount of the cash inflows is reduced. 
D) the initial cost of the project can be reduced. 
E) the salvage value of the project is omitted from the analysis. 
A) the required rate of return is reduced. 
B) each cash inflow is moved such that it occurs one year later than originally projected. 
C) the total amount of the cash inflows is reduced. 
D) the initial cost of the project can be reduced. 
E) the salvage value of the project is omitted from the analysis.

Question 20

What is the net present value of a project with the following cash flows and a required return of 12%?

Accepted Answer

A) -$287.22 
B) -$177.62 
C) $177.62 
D) $204.36 
E) $287.22 
A) -$287.22 
B) -$177.62 
C) $177.62 
D) $204.36 
E) $287.22

Based on the net present value method of analysis and given the information in the problem,you should:

The discounted payback period rule:

Martin is analyzing a project and has gathered the following data.Based on this data,what is the average accounting rate of return? The firm depreciates it assets using straight-line depreciation to a zero book value over the life of the asset.Assume there are no additional costs after Year 0.

When two projects both require the total use of the same limited economic resource,the projects are generally considered to be:

The profitability index is closely related to:

Which of the following does not characterize NPV?

What is the internal rate of return on an investment with the following cash flows?

The Winston Co.is considering two mutually exclusive projects with the following cash flows.The incremental IRR is _ and if the required rate is higher than the crossover rate then project _ should be accepted.

Based on the payback period of for this project,you should _ the project.

Based on the net present value of for this project,you should _ the project.

The discounted payback period of a project will decrease whenever the:

The primary reason that a company's projects with positive net present values are considered acceptable is that:

Based upon the payback period and the information provided in the problem,you should:

You are considering an investment with the following cash flows.If the required rate of return for this investment is 13.5%,should you accept it based solely on the internal rate of return rule? Why or why not?

The problem of multiple IRRs can occur when:

The internal rate of return for a project will increase if:

What is the net present value of a project with the following cash flows and a required return of 12%?

Introduction to Corporate Finance

Financial Statements Cash Flow

Financial Statements Analysis and Long-Term Planning

Discounted Cash Flow Valuation

Interest Rate and Bond Valuation

Stock Valuation

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Capital Budgeting

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividend and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Filters

Exam 7: Net Present Value and Other Investment Rules

Based on the net present value method of analysis and given the information in the problem,you should:

The discounted payback period rule:

Martin is analyzing a project and has gathered the following data.Based on this data,what is the average accounting rate of return? The firm depreciates it assets using straight-line depreciation to a zero book value over the life of the asset.Assume there are no additional costs after Year 0.

When two projects both require the total use of the same limited economic resource,the projects are generally considered to be:

The profitability index is closely related to:

Which of the following does not characterize NPV?

What is the internal rate of return on an investment with the following cash flows?

The Winston Co.is considering two mutually exclusive projects with the following cash flows.The incremental IRR is _____ and if the required rate is higher than the crossover rate then project _____ should be accepted.

Based on the payback period of ____ for this project,you should _____ the project.

Based on the net present value of ____ for this project,you should _____ the project.

The discounted payback period of a project will decrease whenever the:

The primary reason that a company's projects with positive net present values are considered acceptable is that:

Based upon the payback period and the information provided in the problem,you should:

You are considering an investment with the following cash flows.If the required rate of return for this investment is 13.5%,should you accept it based solely on the internal rate of return rule? Why or why not?

The problem of multiple IRRs can occur when:

The internal rate of return for a project will increase if:

What is the net present value of a project with the following cash flows and a required return of 12%?

Introduction to Corporate Finance

Financial Statements Cash Flow

Financial Statements Analysis and Long-Term Planning

Discounted Cash Flow Valuation

Interest Rate and Bond Valuation

Stock Valuation

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Capital Budgeting

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividend and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Filters

The Winston Co.is considering two mutually exclusive projects with the following cash flows.The incremental IRR is _ and if the required rate is higher than the crossover rate then project _ should be accepted.

Based on the payback period of for this project,you should _ the project.

Based on the net present value of for this project,you should _ the project.