Question 1

In the case of a loan project (borrowing),one should accept the project if the IRR is more than the cost of capital.

Accepted Answer

A) True 
 B)False

Question 2

Muscle Company is investing in a giant crane.It is expected to cost $6.5 million in initial investment,and it is expected to generate an end-of-year cash flow of $3.0 million each year for three years.Calculate the IRR.

Accepted Answer

A) 14.6 % 
B) 16.4 % 
C) 18.2 % 
A) 14.6 % 
B) 16.4 % 
C) 18.2 %

Question 3

Suppose a firm has $100 million in excess cash.It could:

Accepted Answer

A) invest the funds in projects with positive NPVs. 
B) pay high dividends to the shareholders. 
C) buy another firm. 
D) all of the options 
A) invest the funds in projects with positive NPVs. 
B) pay high dividends to the shareholders. 
C) buy another firm. 
D) all of the options

Question 4

If the NPV of project A is + $30 and that of project B is -$60,then the NPV of the combined projects is:

Accepted Answer

A) +$30 
B) -$60 
C) -$30 
D) -$1,800 
A) +$30 
B) -$60 
C) -$30 
D) -$1,800

Question 5

What is the profitability index of an investment with cash flows in years 0 thru 4 of -340,120,130,153,and 166,respectively,and a discount rate of 16%?

Accepted Answer

A) .15 
B) .22 
C) .35 
D) .42 
A) .15 
B) .22 
C) .35 
D) .42

Question 6

A project will have only one internal rate of return if:

Accepted Answer

A) the net present value is positive 
B) the net present value is negative 
C) the cash flows decline over the life of the project 
D) there is a one-sign change in the cash flows 
A) the net present value is positive 
B) the net present value is negative 
C) the cash flows decline over the life of the project 
D) there is a one-sign change in the cash flows

Question 7

Which of the following statements regarding the discounted payback period rule is true?

Accepted Answer

A) The discounted payback rule uses the time value of money concept. 
B) The discounted payback rule is better than the NPV rule. 
C) The discounted payback rule considers all cash flows. 
D) The discounted payback rule exhibits the value additivity property. 
A) The discounted payback rule uses the time value of money concept. 
B) The discounted payback rule is better than the NPV rule. 
C) The discounted payback rule considers all cash flows. 
D) The discounted payback rule exhibits the value additivity property.

Question 8

The discounted payback rule calculates the payback period and then discounts the payback period at the opportunity cost of capital.

Accepted Answer

A) True 
 B)False

Question 9

If the net present value (NPV)of project A is +$100,and that of project B is +$60,then the net present value of the combined projects is:

Accepted Answer

A) +$100 
B) +$60 
C) +$160 
D) +$6,000 
A) +$100 
B) +$60 
C) +$160 
D) +$6,000

Question 10

Given the following cash flows for Project M: C0 = -1,000,C1 = +200,C2 = +700,C3 = +698,calculate the IRR for the project.

Accepted Answer

A) 23% 
B) 21% 
C) 19% 
D) 17% 
A) 23% 
B) 21% 
C) 19% 
D) 17%

Question 11

Project Y has following cash flows: C0 = -800,C1 = +5,000,and C2 = -5,000.
Calculate the IRRs for the project:

Accepted Answer

A) 25% and 400%. 
B) 125% and 500%. 
C) -44% and 11.6%. 
A) 25% and 400%. 
B) 125% and 500%. 
C) -44% and 11.6%.

Question 12

The net present value of a project depends upon the:

Accepted Answer

A) company's choice of accounting method. 
B) manager's tastes and preferences. 
C) project's cash flows and opportunity cost of capital. 
D) company's profitability index. 
A) company's choice of accounting method. 
B) manager's tastes and preferences. 
C) project's cash flows and opportunity cost of capital. 
D) company's profitability index.

Question 13

Given the following cash flows for project A: C0 = -3,000,C1 = +500,C2 = +1,500,and C3 = +5,000,calculate the NPV of the project using a 15% discount rate.

Accepted Answer

A) $5,000 
B) $2,352 
C) $3,201 
D) $1,857 
A) $5,000 
B) $2,352 
C) $3,201 
D) $1,857

Question 14

The following table gives the available projects (in $millions)for a firm. $$\begin{array} { r l l l l l l l } 
\underline { \mathrm { A } } & \underline { \mathrm { B } } & \underline { \mathrm { C } } & \underline { \mathrm { D } } & \underline { \mathrm { E } } & \underline { \mathrm { F } } & \underline { \mathrm { G } } & \
90 & 20 & 60 & 50 & 150 & 40 & 20 & \text { Initial investment } \
140 & 70 & 65 & - 10 & 30 & 32 & 10 & \mathrm { NPV }
\end{array}$$
If the firm has a limit of 210 million to invest,what is the maximum NPV the company can obtain?

Accepted Answer

A) 200 
B) 283 
C) 307 
D) 347 
A) 200 
B) 283 
C) 307 
D) 347

Exam 5: Net Present Value and Other Investment Criteria

In the case of a loan project (borrowing),one should accept the project if the IRR is more than the cost of capital.

Muscle Company is investing in a giant crane.It is expected to cost $6.5 million in initial investment,and it is expected to generate an end-of-year cash flow of $3.0 million each year for three years.Calculate the IRR.

Suppose a firm has $100 million in excess cash.It could:

If the NPV of project A is + $30 and that of project B is -$60,then the NPV of the combined projects is:

What is the profitability index of an investment with cash flows in years 0 thru 4 of -340,120,130,153,and 166,respectively,and a discount rate of 16%?

A project will have only one internal rate of return if:

Which of the following statements regarding the discounted payback period rule is true?

The discounted payback rule calculates the payback period and then discounts the payback period at the opportunity cost of capital.

If the net present value (NPV)of project A is +$100,and that of project B is +$60,then the net present value of the combined projects is:

Given the following cash flows for Project M: C0 = -1,000,C1 = +200,C2 = +700,C3 = +698,calculate the IRR for the project.

Project Y has following cash flows: C0 = -800,C1 = +5,000,and C2 = -5,000. Calculate the IRRs for the project:

The net present value of a project depends upon the:

Given the following cash flows for project A: C0 = -3,000,C1 = +500,C2 = +1,500,and C3 = +5,000,calculate the NPV of the project using a 15% discount rate.

The following table gives the available projects (in $millions)for a firm. 90 20 60 50 150 40 20 Initial investment 140 70 65 -10 30 32 10 If the firm has a limit of 210 million to invest,what is the maximum NPV the company can obtain?

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

Investment, Strategy, and Economic Rents

Agency Problems, Compensation, and Performance Measurement

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters

Given the following cash flows for Project M: C₀ = -1,000,C₁ = +200,C₂ = +700,C₃ = +698,calculate the IRR for the project.

Project Y has following cash flows: C₀ = -800,C₁ = +5,000,and C₂ = -5,000. Calculate the IRRs for the project:

Given the following cash flows for project A: C₀ = -3,000,C₁ = +500,C₂ = +1,500,and C₃ = +5,000,calculate the NPV of the project using a 15% discount rate.