Exam 9: Net Present Value and Other Investment Criteria

A project has an initial cost of $18,400 and produces cash inflows of $7,200, $8,900, and $7,500 over three years, respectively. What is the discounted payback period if the required rate of return is 16 percent?

Mutually exclusive projects are best defined as competing projects which:

You are considering an investment with the following cash flows. If the required rate of return for this investment is 15.5 percent, should you accept the investment based solely on the internal rate of return rule? Why or why not?

The Square Box is considering two projects, both of which have an initial cost of $35,000 and total cash inflows of $50,000. The cash inflows of project A are $5,000, $10,000, $15,000, and $20,000 over the next four years, respectively. The cash inflows for project B are $20,000, $15,000, $10,000, and $5,000 over the next four years, respectively. Which one of the following statements is correct if The Square Box requires a 12 percent rate of return and has a required discounted payback period of 3.5 years?

A project has a discounted payback period that is equal to the required payback period. Given this, which of the following statements must be true? I. The project must also be acceptable under the payback rule. II. The project must have a profitability index that is equal to or greater than 1.0. III. The project must have a zero net present value. IV. The project's internal rate of return must equal the required return.

The length of time a firm must wait to recoup the money it has invested in a project is called the:

A project has a required payback period of three years. Which one of the following statements is correct concerning the payback analysis of this project?

You are analyzing a project and have gathered the following data: Based on the internal rate of return of _____ percent for this project, you should _____ the project.

A firm evaluates all of its projects by applying the IRR rule. The required return for the following project is 21 percent. The IRR is _____ percent and the firm should ______ the project.

You are considering two independent projects with the following cash flows. The required return for both projects is 16 percent. Given this information, which one of the following statements is correct?

Based on the profitability index rule, should a project with the following cash flows be accepted if the discount rate is 14 percent? Why or why not?

Consider the following two mutually exclusive projects: What is the crossover rate for these two projects?

Graphing the crossover point helps explain:

An investment project costs $21,500 and has annual cash flows of $4,200 for 6 years. If the discount rate is 20 percent, what is the discounted payback period?

A project with financing type cash flows is typified by a project that has which one of the following characteristics?

The Chandler Group wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is "looking up". As a result, the cemetery project will provide a net cash inflow of $57,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 7 percent per year forever. The project requires an initial investment of $759,000. The firm requires a 14 percent return on such undertakings. The company is somewhat unsure about the assumption of a 7 percent growth rate in its cash flows. At what constant rate of growth would the company just break even?

The present value of an investment's future cash flows divided by the initial cost of the investment is called the:

You are considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value. Should you accept or reject these projects based on the profitability index?

Which one of the following is the best example of two mutually exclusive projects?

Which one of the following increases the net present value of a project?