Exam 9: Net Present Value and Other Investment Criteria

Cool Water Drinks is considering a proposed project with the following cash flows.Should this project be accepted based on the combined approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 12.6 percent? Why or why not? Year Cash Flow 0 -\ 148,500 1 32,800 2 64,200 3 -7,500 4 87,300

You are comparing two mutually exclusive projects.The crossover point is 12.3 percent.You have determined that you should accept project A if the required return is 13.1 percent.This implies you should:

Which of the following are definite indicators of an accept decision for an independent project with conventional cash flows? I.positive net present value II.profitability index greater than zero III.internal rate of return greater than the required rate IV.positive internal rate of return

The final decision on which one of two mutually exclusive projects to accept ultimately depends upon which one of the following?

Which one of the following statements is correct in relation to independent projects?

Western Beef Exporters is considering a project that has an NPV of $32,600,an IRR of 15.1 percent,and a payback period of 3.2 years.The required return is 14.5 percent and the required payback period is 3.0 years.Which one of the following statements correctly applies to this project?

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

The Taxi Co.is evaluating a project with the following cash flows: The company uses an 8 percent interest rate on all of its projects.What is the MIRR using the discounted approach?

The internal rate of return is:

A project has a required payback period of three years.Which one of the following statements is correct concerning the payback analysis of this project?

The Chandler Group wants to set up a private cemetery business.According to the CFO,Barry M.Deep,business is "looking up".As a result,the cemetery project will provide a net cash inflow of $57,000 for the firm during the first year,and the cash flows are projected to grow at a rate of 7 percent per year forever.The project requires an initial investment of $759,000.The firm requires a 14 percent return on such undertakings.The company is somewhat unsure about the assumption of a 7 percent growth rate in its cash flows.At what constant rate of growth would the company just break even?

You are viewing a graph that plots the NPVs of a project to various discount rates that could be applied to the project's cash flows.What is the name given to this graph?

You are analyzing the following two mutually exclusive projects and have developed the following information.What is the crossover rate? Year Project A Cash Flow Project B Cash Flow 0 -\ 75,000 -\ 75,000 1 \ 26,300 \ 24,000 2 \ 29,500 \ 26,900 3 \ 45,300 \ 51,300

A project has average net income of $5,900 a year over its 6-year life.The initial cost of the project is $98,000 which will be depreciated using straight-line depreciation to a book value of zero over the life of the project.The firm wants to earn a minimum average accounting return of 11.5 percent.The firm should _____ the project because the AAR is _____ percent.

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

What is the net present value of a project with the following cash flows if the required rate of return is 9 percent? Year Cash Flow $0 - \$ 42,398$ $1 \quad 18,201$ $2 \quad 21,219$ $3 \quad 17,800$

Douglass Interiors is considering two mutually exclusive projects and have determined that the crossover rate for these projects is 11.7 percent.Project A has an internal rate of return (IRR)of 15.3 percent and Project B has an IRR of 16.5 percent.Given this information,which one of the following statements is correct?

You are analyzing a project and have gathered the following data: 1 -\ 175,000 2 \ 56,400 3 \ 61,800 4 \ 72,000 Required payback period 2.5 years Required AAR 11.5 percent Required return 14.5 percent Based on the internal rate of return of _____ percent for this project,you should _____ the project.

A project has a net present value of zero.Which one of the following best describes this project?

You are considering two independent projects both of which have been assigned a discount rate of 15 percent.Based on the profitability index,what is your recommendation concerning these projects? Project A Year Cash Flow 0 -\ 46,000 1 \ 32,000 2 \ 27,000 Project B Year Cash Flow 0 -\ 50,000 1 \ 18,000 2 \ 54,000