Exam 9: Net Present Value and Other Investment Criteria

Southern Chicken is considering two projects.Project A consists of creating an outdoor eating area on the unused portion of the restaurant's property.Project B would use that outdoor space for creating a drive-thru service window.When trying to decide which project to accept,the firm should rely most heavily on which one of the following analytical methods?

You are considering a project with conventional cash flows and the following characteristics: Internal rate of return 11.63 percent Profitability ratio 1.04 Net present value \ 987 Payback period 2.98 years Which of the following statements is correct given this information? I.The discount rate used in computing the net present value was less than 11.63 percent. II.The discounted payback period must be more than 2.98 years. III.The discount rate used in the computation of the profitability ratio was 11.63 percent. IV.This project should be accepted as the internal rate of return exceeds the required return.

Which one of the following statements related to payback and discounted payback is correct?

You are considering the following two mutually exclusive projects.The required rate of return is 14.6 percent for project A and 13.8 percent for project B.Which project should you accept and why?

Which one of the following methods determines the amount of the change a proposed project will have on the value of a firm?

A project produces annual net income of $46,200,$51,800,and $62,900 over its 3-year life,respectively.The initial cost of the project is $675,000.This cost is depreciated straight-line to a zero book value over three years.What is the average accounting rate of return if the required discount rate is 14.5 percent?

An investment project costs $21,500 and has annual cash flows of $6,500 for 6 years.If the discount rate is 15 percent,what is the discounted payback period?

Graphing the crossover point helps explain:

A project has an initial cost of $6,500.The cash inflows are $900,$2,200,$3,600,and $4,100 over the next four years,respectively.What is the payback period?

It will cost $6,000 to acquire an ice cream cart.Cart sales are expected to be $3,600 a year for three years.After the three years,the cart is expected to be worthless as the expected life of the refrigeration unit is only three years.What is the payback period?

Blue Water Systems is analyzing a project with the following cash flows.Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 14 percent? Why or why not? 1 137,400 2 189,300 3 -25,000

You would like to invest in the following project. Sis,your boss,insists that only projects returning at least $1.06 in today's dollars for every $1 invested can be accepted.She also insists on applying a 14 percent discount rate to all cash flows.Based on these criteria,you should:

A project has a discounted payback period that is equal to the required payback period.Given this,which of the following statements must be true? I.The project must also be acceptable under the payback rule. II.The project must have a profitability index that is equal to or greater than 1.0. III.The project must have a zero net present value. IV.The project's internal rate of return must equal the required return.

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 IRR analysis?

You are analyzing a project and have gathered the following data: Based on the profitability index of _____ for this project,you should _____ the project.