Exam 9: Net Present Value and Other Investment Criteria

Which of the following are considered weaknesses in the average accounting return method of project analysis? I.exclusion of time value of money considerations II.need of a cutoff rate III.easily obtainable information for computation IV.based on accounting values

Applying the discounted payback decision rule to all projects may cause:

Which one of the following increases the net present value of a project?

Net present value:

Which of the following are advantages of the payback method of project analysis? I.works well for research and development projects II.liquidity bias III.ease of use IV.arbitrary cutoff point

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

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?

Mutually exclusive projects are best defined as competing projects which:

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

Colin is analyzing a project and has gathered the following data.Based on this data,what is the average accounting rate of return? The project's assets will be depreciated using straight-line depreciation to a zero book value over the life of the project. Net Income 1 -\ 285,000 n/a 2 \ 83,650 \ 12,400 3 \ 92,850 \ 21,600 4 \ 94,350 \ 23,100 \ 93,250 \ 22,000

If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery.These projects are considered to be:

You are considering a project with an initial cost of $7,500.What is the payback period for this project if the cash inflows are $1,100,$1,640,$3,800,and $4,500 a year over the next four years,respectively?

A project that provides annual cash flows of $12,600 for 12 years costs $65,000 today.At what rate would you be indifferent between accepting the project and rejecting it?

Motor City Productions sells original automotive art on a prepaid basis as each piece is uniquely designed to the customer's specifications.For one project,the cash flows are estimated as follows.Based on the internal rate of return (IRR),should this project be accepted if the required return is 9 percent? 1 -\ 5,900

The internal rate of return is defined as the:

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?

You are considering two independent projects with the following cash flows.The required return for both projects is 16 percent.Given this information,which one of the following statements is correct?

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

Explain the differences and similarities between net present value (NPV)and the profitability index.

Day Interiors is considering a project with the following cash flows.What is the IRR of this project? Year Cash Flow 0 -\ 114,600 1 35,900 2 50,800 3 45,000