Exam 7: Net Present Value and Other Investment Rules

You are considering a project with an initial cost of $4,400.What is the payback period for this project if the cash inflows are $550,$970,$2,800,and $500 a year over the next four years,respectively?

The average accounting return is determined by:

The length of time required for an investment to generate cash flows sufficient to recover the initial cost of the investment is called the:

Given that the net present value (NPV)is generally considered to be the best method of analysis,why should you still use the other methods?

Based on the internal rate of return of ____ for this project,you should _____ the project.

The advantages of the payback method of project analysis include the: I.application of a discount rate to each separate cash flow. II.bias towards liquidity. III.ease of use. IV.arbitrary cutoff point.

The discount rate that makes the net present value of an investment exactly equal to zero is called the:

The elements that cause problems with the use of the IRR in projects that are mutually exclusive are:

If there is a conflict between mutually exclusive projects due to the IRR,one should:

Matt is analyzing two mutually exclusive projects of similar size and has prepared the following data.Both projects have 5 year lives. Matt has been asked for his best recommendation given this information.His recommendation should be to accept:

Which of the following statement is true?

A project will produce cash inflows of $1,750 a year for four years.The project initially costs $10,600 to get started.In year five,the project will be closed and as a result should produce a cash inflow of $8,500.What is the net present value of this project if the required rate of return is 14.75%?

You are considering two independent projects both of which have been assigned a discount rate of 8%.Based on the profitability index,what is your recommendation concerning these projects?

If a project is assigned a required rate of return equal to zero,then:

Larry's Lanterns is considering a project which will produce sales of $250,000 a year for the next five years.The profit margin is estimated at 5%.The project will cost $300,000 and be depreciated straight-line to a book value of zero over the life of the project.Larry's has a required accounting return of 8%.This project should be _____ because the AAR is ____.

You are analyzing the following two mutually exclusive projects and have developed the following information.What is the incremental IRR?

The payback period rule is a convenient and useful tool because:

The internal rate of return may be defined as:

Modified internal rate of return:

An investment is acceptable if the profitability index (PI)of the investment is: