Exam 9: Net Present Value and Other Investment Criteria

What is the net present value of a project that has an initial cash outflow of $34,900 and the following cash inflows? The required return is 15.35 percent.

Western Beef Exporters is considering a project that has an NPV of $32,600, an IRR of 15.1 percent, and a payback period of 3.2 years. The required return is 14.5 percent and the required payback period is 3.0 years. Which one of the following statements correctly applies to this project?

What is the net present value of a project with the following cash flows if the required rate of return is 12 percent?

You are viewing a graph that plots the NPVs of a project to various discount rates that could be applied to the project's cash flows. What is the name given to this graph?

Tedder Mining has analyzed a proposed expansion project and determined that the internal rate of return is lower than the firm desires. Which one of the following changes to the project would be most expected to increase the project's internal rate of return?

Which one of the following is an advantage of the average accounting return method of analysis?

A project has an initial cost of $6,500. The cash inflows are $900, $2,200, $3,600, and $4,100 over the next four years, respectively. What is the payback period?

You are considering a project with conventional cash flows and the following characteristics: Which of the following statements is correct given this information? I. The discount rate used in computing the net present value was less than 11.63 percent. II. The discounted payback period must be less than 2.98 years. III. The discount rate used in the computation of the profitability ratio was 11.63 percent. IV. This project should be accepted as the internal rate of return exceeds the required return.

Douglass Interiors is considering two mutually exclusive projects and have determined that the crossover rate for these projects is 11.7 percent. Project A has an internal rate of return (IRR) of 15.3 percent and Project B has an IRR of 16.5 percent. Given this information, which one of the following statements is correct?

You would like to invest in the following project. Sis, your boss, insists that only projects returning at least $1.06 in today's dollars for every $1 invested can be accepted. She also insists on applying a 14 percent discount rate to all cash flows. Based on these criteria, you should:

In actual practice, managers frequently use the: I. average accounting return method because the information is so readily available. II. internal rate of return because the results are easy to communicate and understand. III. discounted payback because of its simplicity. IV. net present value because it is considered by many to be the best method of analysis.

Explain how the internal rate of return (IRR) decision rule is applied to projects with financing type cash flows.

Day Interiors is considering a project with the following cash flows. What is the IRR of this project?

Which one of the following will decrease the net present value of a project?

Rosa's Designer Gowns creates exquisite gowns for special occasions on a prepaid basis only. The required return is 8 percent. Rosa has estimated the cash flows for one gown as follows. Should Rosa sell this gown at the price she is currently considering based on the estimated internal rate of return (IRR)?

Kristi wants to start training her most junior assistant, Amy, in the art of project analysis. Amy has just started college and has no experience or background in business finance. To get her started, Kristi is going to assign the responsibility for all projects that have initial costs less than $1,000 to Amy to analyze. Which method is Kristi most apt to ask Amy to use in making her initial decisions?

Why is payback often used as the sole method of analyzing a proposed small project?

The internal rate of return is defined as the:

The internal rate of return:

Roger's Meat Market is considering two independent projects. The profitability index decision rule indicates that both projects should be accepted. This result most likely does which one of the following?