Exam 8: Net Present Value and Other Investment Criteria

Alpha Zeta is considering purchasing some new equipment costing $390,000. The equipment will be depreciated on a straight line basis to a zero book value over the four-year life of the project. Projected net income for the four years is $18,900, $21,300, $26,700, and $25,000. What is the average accounting rate of return?

A project has the following cash flows. What is the internal rate of return?

Which one of the following is an indicator that an investment is acceptable?

The net present value:

The Flour Baker is considering a project with the following cash flows. Should this project be accepted based on its internal rate of return if the required return is 11 percent?

Baker's Supply imposes a payback cutoff of 3.5 years for its international investment projects. If the company has the following two projects available, should it accept either of them?

Services United is considering a new project that requires an initial cash investment of $75,000. The project will generate cash inflows of $26,500, $32,700, $18,500, and $10,000 over each of the next four years, respectively. How long will it take to recover the initial investment?

Which one of the following is most closely related to the net present value profile?

The net present value profile illustrates how the net present value of an investment is affected by which one of the following?

The payback method of analysis ignores which one of the following?

Which one of the following is specifically designed to compute the rate of return on a project that has unconventional cash flows?

Which one of the following methods of analysis is most similar to computing the return on assets (ROA)?

The net present value of a project's cash inflows is $8,216 at a 14 percent discount rate. The profitability index is 1.03 and the firm's tax rate is 34 percent. What is the initial cost of the project?

What is the net present value of a project with the following cash flows if the discount rate is 14 percent?

Textiles Unlimited has gathered projected cash flows for two projects. At what interest rate would the company be indifferent between the two projects? Which project is better if the required return is above this interest rate?

What is the net present value of the following cash flows if the relevant discount rate is 8.8 percent?

A firm is reviewing a project that has an initial cost of $71,000. The project will produce annual cash inflows, starting with year 1, of $8,000, $13,400, $18,600, $33,100 and finally in year five, $37,900. What is the profitability index if the discount rate is 11 percent?

The possibility that more than one discount rate can cause the net present value of an investment to equal zero is referred to as:

Discounted cash flow valuation is the process of discounting an investment's:

In which one of the following situations would the payback method be the preferred method of analysis?