Exam 9: Net Present Value and Other Investment Criteria

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 profitability index?

Which one of the following statements related to the internal rate of return (IRR)is correct?

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.

An investment project provides cash flows of $1,190 per year for 10 years.If the initial cost is $8,000,what is the payback period?

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

A firm evaluates all of its projects by using the NPV decision rule.At a required return of 14 percent,the NPV for the following project is _____ and the firm should _____ the project.

A project will produce cash inflows of $2,800 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?

Consider the following two mutually exclusive projects: Cash Flow (B) 0 -\ 10,110 -\ 10,110 1 \ 5,200 \ 4,300 2 \ 3,373 \ 3,543 3 \ 4,473 \ 5,343 What is the crossover rate for these two projects?

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 $1,800.Toy sales are expected to produce net cash inflows of $2,300,$2,900,$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?

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?

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

The present value of an investment's future cash flows divided by the initial cost of the investment is called the:

The length of time a firm must wait to recoup the money it has invested in a project is called the:

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

The internal rate of return:

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

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)?

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:

A project with financing type cash flows is typified by a project that has which one of the following characteristics?

A firm evaluates all of its projects by applying the IRR rule.The required return for the following project is 21 percent.The IRR is _____ percent and the firm should ______ the project.