Exam 9: Net Present Value and Other Investment Criteria

A project has an initial cost of $35,000 and a 3-year life. The company uses straight-line depreciation to a book value of zero over the life of the project. The projected net income from the project is $1,200, $2,300, and $1,800 a year for the next 3 years, respectively. What is the average accounting return?

A project will produce cash inflows of $3,200 a year for 4 years with a final cash inflow of $5,700 in year 5. The project's initial cost is $9,500. What is the net present value of this project if the required rate of return is 16 percent?

Which one of the following statements related to payback and discounted payback is correct?

You are considering two mutually exclusive projects with the following cash flows. Which project(s) should you accept if the discount rate is 8.5 percent? What if the discount rate is 13 percent?

Sheakley Industries is considering expanding its current line of business and has developed the following expected cash flows for the project. Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 13.4 percent? Why or why not?

Which one of the following methods of analysis provides the best information on the cost-benefit aspects of a project?

The relevant discount rate for the following set of cash flows is 14 percent. What is the profitability index?

What is the profitability index for an investment with the following cash flows given a 14.5 percent required return?

It will cost $6,000 to acquire an ice cream cart. Cart sales are expected to be $3,600 a year for three years. After the three years, the cart is expected to be worthless as the expected life of the refrigeration unit is only three years. What is the payback period?

You are analyzing a project and have gathered the following data: Based on the net present value of _____, you should _____ the project.

If a project has a net present value equal to zero, then:

When the present value of the cash inflows exceeds the initial cost of a project, then the project should be:

A project has an initial cost of $27,400 and a market value of $32,600. What is the difference between these two values called?

Home Décor & More is considering a proposed project with the following cash flows. Should this project be accepted based on the combination approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 16 percent? Why or why not?

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 average accounting return?

Which of the following statements generally apply to the cash flows of a financing type project? I. nonconventional cash flows II. cash outflows exceed cash inflows prior to any time value adjustments III. cash for services rendered is received prior to the cash that is spent providing the services IV. the total of all cash flows must equal zero on an unadjusted basis

Which two methods of project analysis are the most biased towards short-term projects?

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 payback analysis?

Which two methods of project analysis were the most widely used by CEO's as of 1999?

Boston Chicken is considering two mutually exclusive projects with the following cash flows. What is the crossover rate? If the required rate of return is lower than the crossover rate, which project should be accepted?