Question 1

Which one of the following is a project acceptance indicator given an independent project with investing type cash flows?

Accepted Answer

A) profitability index less than 1.0 
B) project's internal rate of return less than the required return 
C) discounted payback period greater than requirement 
D) average accounting return that is less than the internal rate of return 
E) modified internal rate of return that exceeds the required return 
A) profitability index less than 1.0 
B) project's internal rate of return less than the required return 
C) discounted payback period greater than requirement 
D) average accounting return that is less than the internal rate of return 
E) modified internal rate of return that exceeds the required return

Question 2

Which one of the following methods determines the amount of the change a proposed project will have on the value of a firm?

Accepted Answer

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

Question 3

Alicia is considering adding toys to her gift shop. She estimates that the cost of inventory will be $7,500. The remodeling expenses and shelving costs are estimated at $1,500. Toy sales are expected to produce net cash inflows of $1,800, $2,700, $3,200, and $3,400 over the next four years, respectively. Should Alicia add toys to her store if she assigns a three-year payback period to this project? Why or why not?

Accepted Answer

A) No; The payback period is 2.93 years. 
B) No; The payback period is 3.38 years. 
C) Yes; The payback period is 2.93 years. 
D) Yes; The payback period is 3.01 years. 
E) Yes; The payback period is 3.38 years. 
A) No; The payback period is 2.93 years. 
B) No; The payback period is 3.38 years. 
C) Yes; The payback period is 2.93 years. 
D) Yes; The payback period is 3.01 years. 
E) Yes; The payback period is 3.38 years.

Question 4

Motor City Productions sells original automotive art on a prepaid basis as each piece is uniquely designed to the customer's specifications. For one project, the cash flows are estimated as follows. Based on the internal rate of return (IRR), should this project be accepted if the required return is 9 percent?

Accepted Answer

A) Accept the project. 
B) Reject the project. 
C) The IRR cannot be used to evaluate this type of project. 
D) The firm should be indifferent to either accepting or rejecting this project. 
E) Insufficient information is provided to make a decision based on IRR. 
A) Accept the project. 
B) Reject the project. 
C) The IRR cannot be used to evaluate this type of project. 
D) The firm should be indifferent to either accepting or rejecting this project. 
E) Insufficient information is provided to make a decision based on IRR.

Question 5

Southern Chicken is considering two projects. Project A consists of creating an outdoor eating area on the unused portion of the restaurant's property. Project B would use that outdoor space for creating a drive-thru service window. When trying to decide which project to accept, the firm should rely most heavily on which one of the following analytical methods?

Accepted Answer

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

Question 6

The profitability index (PI) of a project is 1.0. What do you know about the project's net present value (NPV) and its internal rate of return (IRR)?

Accepted Answer

If the PI is equal t

Question 7

A project's average net income divided by its average book value is referred to as the project's average:

Accepted Answer

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

Question 8

Which one of the following methods of project analysis is defined as computing the value of a project based upon the present value of the project's anticipated cash flows?

Accepted Answer

A) constant dividend growth model 
B) discounted cash flow valuation 
C) average accounting return 
D) expected earnings model 
E) internal rate of return 
A) constant dividend growth model 
B) discounted cash flow valuation 
C) average accounting return 
D) expected earnings model 
E) internal rate of return

Question 9

A project produces annual net income of $46,200, $51,800, and $62,900 over its 3-year life, respectively. The initial cost of the project is $675,000. This cost is depreciated straight-line to a zero book value over three years. What is the average accounting rate of return if the required discount rate is 14.5 percent?

Accepted Answer

A) 15.89 percent 
B) 16.67 percent 
C) 18.98 percent 
D) 20.25 percent 
E) 23.84 percent 
A) 15.89 percent 
B) 16.67 percent 
C) 18.98 percent 
D) 20.25 percent 
E) 23.84 percent

Question 10

You are analyzing a project and have gathered the following data:   Based on the profitability index of _____ for this project, you should _____ the project.

Accepted Answer

A) 0.93; accept 
B) 1.02; accept 
C) 1.07; accept 
D) 0.93; reject 
E) 1.07; reject 
A) 0.93; accept 
B) 1.02; accept 
C) 1.07; accept 
D) 0.93; reject 
E) 1.07; reject

Question 11

The Taxi Co. is evaluating a project with the following cash flows:   The company uses a 10 percent interest rate on all of its projects. What is the MIRR using the discounted approach?

Accepted Answer

A) 13.25 percent 
B) 14.08 percent 
C) 16.40 percent 
D) 17.17 percent 
E) 19.23 percent 
A) 13.25 percent 
B) 14.08 percent 
C) 16.40 percent 
D) 17.17 percent 
E) 19.23 percent

Question 12

An investment has the following cash flows and a required return of 13 percent. Based on IRR, should this project be accepted? Why or why not?

Accepted Answer

A) No; The IRR exceeds the required return by about 0.06 percent. 
B) No; The IRR is less than the required return by about 0.94 percent. 
C) Yes; The IRR exceeds the required return by about 0.06 percent. 
D) Yes; The IRR exceeds the required return by about 0.94 percent. 
E) Yes; The IRR is less than the required return by about 0.06 percent. 
A) No; The IRR exceeds the required return by about 0.06 percent. 
B) No; The IRR is less than the required return by about 0.94 percent. 
C) Yes; The IRR exceeds the required return by about 0.06 percent. 
D) Yes; The IRR exceeds the required return by about 0.94 percent. 
E) Yes; The IRR is less than the required return by about 0.06 percent.

Question 13

Scott is considering a project that will produce cash inflows of $2,100 a year for 4 years. The project has a 12 percent required rate of return and an initial cost of $5,000. What is the discounted payback period?

Accepted Answer

A) 2.97 years 
B) 3.11 years 
C) 3.26 years 
D) 4.38 years 
E) never 
A) 2.97 years 
B) 3.11 years 
C) 3.26 years 
D) 4.38 years 
E) never

Question 14

Colin is analyzing a project and has gathered the following data. Based on this data, what is the average accounting rate of return? The project's assets will be depreciated using straight-line depreciation to a zero book value over the life of the project.

Accepted Answer

A) 6.94 percent 
B) 13.88 percent 
C) 15.66 percent 
D) 27.75 percent 
E) 31.31 percent 
A) 6.94 percent 
B) 13.88 percent 
C) 15.66 percent 
D) 27.75 percent 
E) 31.31 percent

Question 15

A project that provides annual cash flows of $12,600 for 12 years costs $67,150 today. At what rate would you be indifferent between accepting the project and rejecting it?

Accepted Answer

A) 15.28 percent 
B) 15.40 percent 
C) 15.51 percent 
D) 15.62 percent 
E) 15.74 percent 
A) 15.28 percent 
B) 15.40 percent 
C) 15.51 percent 
D) 15.62 percent 
E) 15.74 percent

Question 16

The length of time a firm must wait to recoup, in present value terms, the money it has in invested in a project is referred to as the:

Accepted Answer

A) net present value period. 
B) internal return period. 
C) payback period. 
D) discounted profitability period. 
E) discounted payback period. 
A) net present value period. 
B) internal return period. 
C) payback period. 
D) discounted profitability period. 
E) discounted payback period.

Question 17

Net present value:

Accepted Answer

A) is the best method of analyzing mutually exclusive projects. 
B) is less useful than the internal rate of return when comparing different sized projects. 
C) is the easiest method of evaluation for non-financial managers to use. 
D) is less useful than the profitability index when comparing mutually exclusive projects. 
E) is very similar in its methodology to the average accounting return. 
A) is the best method of analyzing mutually exclusive projects. 
B) is less useful than the internal rate of return when comparing different sized projects. 
C) is the easiest method of evaluation for non-financial managers to use. 
D) is less useful than the profitability index when comparing mutually exclusive projects. 
E) is very similar in its methodology to the average accounting return.

Question 18

If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be:

Accepted Answer

A) independent. 
B) interdependent. 
C) mutually exclusive. 
D) economically scaled. 
E) operationally distinct. 
A) independent. 
B) interdependent. 
C) mutually exclusive. 
D) economically scaled. 
E) operationally distinct.

Question 19

You are analyzing a project and have gathered the following data:   Based on the payback period of _____ years for this project, you should _____ the project.

Accepted Answer

A) 2.79; accept 
B) 3.79; accept 
C) 2.46; reject 
D) 2.79; reject 
E) 3.79; reject 
A) 2.79; accept 
B) 3.79; accept 
C) 2.46; reject 
D) 2.79; reject 
E) 3.79; reject

Question 20

You are considering a project with an initial cost of $7,800. What is the payback period for this project if the cash inflows are $1,100, $1,640, $3,800, and $4,500 a year over the next four years, respectively?

Accepted Answer

A) 3.21 years 
B) 3.28 years 
C) 3.36 years 
D) 4.21 years 
E) 4.29 years 
A) 3.21 years 
B) 3.28 years 
C) 3.36 years 
D) 4.21 years 
E) 4.29 years

Exam 9: Net Present Value and Other Investment Criteria

Which one of the following is a project acceptance indicator given an independent project with investing type cash flows?

Which one of the following methods determines the amount of the change a proposed project will have on the value of a firm?

The profitability index (PI) of a project is 1.0. What do you know about the project's net present value (NPV) and its internal rate of return (IRR)?

A project's average net income divided by its average book value is referred to as the project's average:

Which one of the following methods of project analysis is defined as computing the value of a project based upon the present value of the project's anticipated cash flows?

You are analyzing a project and have gathered the following data: Based on the profitability index of _____ for this project, you should _____ the project.

The Taxi Co. is evaluating a project with the following cash flows: The company uses a 10 percent interest rate on all of its projects. What is the MIRR using the discounted approach?

An investment has the following cash flows and a required return of 13 percent. Based on IRR, should this project be accepted? Why or why not?

Scott is considering a project that will produce cash inflows of $2,100 a year for 4 years. The project has a 12 percent required rate of return and an initial cost of $5,000. What is the discounted payback period?

Colin is analyzing a project and has gathered the following data. Based on this data, what is the average accounting rate of return? The project's assets will be depreciated using straight-line depreciation to a zero book value over the life of the project.

A project that provides annual cash flows of $12,600 for 12 years costs $67,150 today. At what rate would you be indifferent between accepting the project and rejecting it?

The length of time a firm must wait to recoup, in present value terms, the money it has in invested in a project is referred to as the:

Net present value:

If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be:

You are analyzing a project and have gathered the following data: Based on the payback period of _____ years for this project, you should _____ the project.

You are considering a project with an initial cost of $7,800. What is the payback period for this project if the cash inflows are $1,100, $1,640, $3,800, and $4,500 a year over the next four years, respectively?

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Dividend Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Risk Management: An Introduction to Financial Engineering

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters

You are analyzing a project and have gathered the following data: Based on the profitability index of _ for this project, you should _ the project.

You are analyzing a project and have gathered the following data: Based on the payback period of _ years for this project, you should _ the project.