Question 1

Which one of the following methods of analysis ignores cash flows?

Accepted Answer

A) Profitability index 
B) Payback 
C) Average accounting return 
D) Modified internal rate of return 
E) Internal rate of return 
A) Profitability index 
B) Payback 
C) Average accounting return 
D) Modified internal rate of return 
E) Internal rate of return C

Question 2

A project has the following cash flows.What is the payback period? $$\begin{array} { | c | r | } 
\hline \text { Year } & \text { Cash Flow } \
\hline 0 & - \$ 28,000 \
\hline 1 & 11,600 \
\hline 2 & 11,600 \
\hline 3 & 6,600 \
\hline 4 & 6,600 \
\hline
\end{array}$$

Accepted Answer

A) 2.38 years 
B) 2.49 years 
C) 2.74 years 
D) 3.01 years 
E) 3.33 years 
A) 2.38 years 
B) 2.49 years 
C) 2.74 years 
D) 3.01 years 
E) 3.33 years C

Question 3

If an investment is producing a return that is equal to the required return,the investment's net present value will be:

Accepted Answer

A) positive. 
B) greater than the project's initial investment. 
C) zero. 
D) equal to the project's net profit. 
E) less than, or equal to, zero. 
A) positive. 
B) greater than the project's initial investment. 
C) zero. 
D) equal to the project's net profit. 
E) less than, or equal to, zero. C

Question 4

Which one of the following methods of analysis is most appropriate to use when two investments are mutually exclusive?

Accepted Answer

A) Internal rate of return 
B) Profitability index 
C) Net present value 
D) Modified internal rate of return 
E) Average accounting return 
A) Internal rate of return 
B) Profitability index 
C) Net present value 
D) Modified internal rate of return 
E) Average accounting return

Question 5

A project has expected cash inflows,starting with Year 1,of $900,$1,200,$1,500,and finally in Year 4,$2,000.The profitability index is 1.11 and the discount rate is 12 percent.What is the initial cost of the project?

Accepted Answer

A) $3,899.16 
B) $4,098.24 
C) $3,692.71 
D) $3,211.06 
E) $4,250.00 
A) $3,899.16 
B) $4,098.24 
C) $3,692.71 
D) $3,211.06 
E) $4,250.00

Question 6

A proposed project requires an initial cash outlay of $49,000 for equipment and an additional cash outlay of $18,700 in Year 1 to cover.operating costs.During Years 2 through 4,the project will generate cash inflows of $42,500 a year.What is the net present value of this.project at a discount rate of 11.6 percent?

Accepted Answer

A) $26,343.72 
B) $26,391.08 
C) $25,810.33 
D) $24,399.99 
E) $23,602.18 
A) $26,343.72 
B) $26,391.08 
C) $25,810.33 
D) $24,399.99 
E) $23,602.18

Question 7

You are using a net present value profile to compare Projects A and B,which are mutually exclusive.Which one of the following statements correctly applies to the crossover point between these two?

Accepted Answer

A) The internal rate of return for Project A equals that of Project B, but generally does not equal zero. 
B) The internal rate of return of each project is equal to zero. 
C) The net present value of each project is equal to zero. 
D) The net present value of Project A equals that of Project B, but generally does not equal zero. 
E) The net present value of each project is equal to the respective project's initial cost. 
A) The internal rate of return for Project A equals that of Project B, but generally does not equal zero. 
B) The internal rate of return of each project is equal to zero. 
C) The net present value of each project is equal to zero. 
D) The net present value of Project A equals that of Project B, but generally does not equal zero. 
E) The net present value of each project is equal to the respective project's initial cost.

Question 8

Jefferson International is trying to choose between the following two mutually exclusive design projects: $$\begin{array} { | r | r | r | } 
\hline \text { Year } & \text { Cash Flow }  & \underline { \text { Cash } } \
&{ ( \mathrm { A } ) }  & \underline { \text { Flow } ( \mathrm { B } ) } \
\hline 0 & - \$ 55,000 & - \$ 29,000 \
\hline 1 & 12,300 & 19,400 \
\hline 2 & 15,100 & 16,600 \
\hline 3 & 50,000 & 900 \

\hline
\end{array}$$ The required return is 13 percent.If the company applies the profitability index (PI)decision rule,which project should the firm accept? If the company applies the NPV decision rule,which project should it take?
Given your first two answers,which project should the firm actually accept?

Accepted Answer

A) Project A; Project B; Project A 
B) Project A; Project B; Project B 
C) Project B; Project A; Project A 
D) Project B; Project A; Project B 
E) Project B; Project B, Project B 
A) Project A; Project B; Project A 
B) Project A; Project B; Project B 
C) Project B; Project A; Project A 
D) Project B; Project A; Project B 
E) Project B; Project B, Project B

Question 9

Greenbriar Cotton Mill is spending $284,000 to update its facility.The company estimates that this investment will improve its cash.inflows by $50,500 a year for 8 years.What is the payback period?

Accepted Answer

A) 4.03 years 
B) 4.95 years 
C) 5.48 years 
D) 5.62 years 
E) The project never pays back. 
A) 4.03 years 
B) 4.95 years 
C) 5.48 years 
D) 5.62 years 
E) The project never pays back.

Question 10

A firm is reviewing a project that has an initial cost of $67,000.The project will produce annual cash inflows,starting with Year 1,of $8,000,$13,400,$18,600,$24,100,and finally in Year 5,$37,900.What is the profitability index if the discount rate is 11 percent?

Accepted Answer

A) .92 
B) .98 
C) 1.02 
D) 1.05 
E) 1.09 
A) .92 
B) .98 
C) 1.02 
D) 1.05 
E) 1.09

Question 11

The modified internal rate of return is specifically designed to address the problems associated with:

Accepted Answer

A) mutually exclusive projects. 
B) unconventional cash flows. 
C) long-term projects. 
D) negative net present values. 
E) crossover points. 
A) mutually exclusive projects. 
B) unconventional cash flows. 
C) long-term projects. 
D) negative net present values. 
E) crossover points.

Question 12

Which one of the following analytical methods is based on net income?

Accepted Answer

A) Profitability index 
B) Internal rate of return 
C) Average accounting return 
D) Modified internal rate of return 
E) Payback 
A) Profitability index 
B) Internal rate of return 
C) Average accounting return 
D) Modified internal rate of return 
E) Payback

Question 13

You were recently hired by a firm as a project analyst.The owner of the firm is unfamiliar with financial analysis and wants to know only what the expected dollar return is per dollar spent on a given project.Which financial method of analysis will provide the information that the owner requests?

Accepted Answer

A) Internal rate of return 
B) Modified internal rate of return 
C) Net present value 
D) Profitability index 
E) Payback 
A) Internal rate of return 
B) Modified internal rate of return 
C) Net present value 
D) Profitability index 
E) Payback

Question 14

What is the net present value of a project that has an initial cost of $42,700 and produces cash inflows of $9,250 a year for 9 years if the discount rate is 14.65 percent?

Accepted Answer

A) $798.48 
B) $1,240.23 
C) $1,992.43 
D) $2,111.41 
E) $2,470.01 
A) $798.48 
B) $1,240.23 
C) $1,992.43 
D) $2,111.41 
E) $2,470.01

Question 15

Based on the most recent survey information presented in your textbook,CFOs tend to use which two methods of investment analysis the most frequently?

Accepted Answer

A) Payback and net present value 
B) Payback and internal rate of return 
C) Internal rate of return and net present value 
D) Net present value and profitability index 
E) Profitability index and internal rate of return 
A) Payback and net present value 
B) Payback and internal rate of return 
C) Internal rate of return and net present value 
D) Net present value and profitability index 
E) Profitability index and internal rate of return

Question 16

Miller and Sons is evaluating a project with the following cash flows: $$\begin{array} { | c | r | } 
\hline \text { Year } & \text { Cash Flow } \
\hline 0 & - \$ 72,000 \
\hline 1 & 29,100 \
\hline 2 & 20,600 \
\hline 3 & 42,500 \
\hline 4 & 24,300 \
\hline 5 & - 9,800 \
\hline
\end{array}$$ The company uses a 10 percent interest rate on all of its projects.What is the MIRR of the project using the reinvestment approach? The discounting approach?
The combination approach?

Accepted Answer

A) 18.54 percent; 17.29 percent; 14.61 percent 
B) 13.96 percent; 14.38 percent; 14.61 percent 
C) 18.54 percent; 17.29 percent; 13.67 percent 
D) 13.96 percent; 17.85 percent; 13.67 percent 
E) 18.54 percent; 18.23 percent; 18.61 percent 
A) 18.54 percent; 17.29 percent; 14.61 percent 
B) 13.96 percent; 14.38 percent; 14.61 percent 
C) 18.54 percent; 17.29 percent; 13.67 percent 
D) 13.96 percent; 17.85 percent; 13.67 percent 
E) 18.54 percent; 18.23 percent; 18.61 percent

Question 17

Which one of the following is true if the managers of a firm accept only projects that have a profitability index greater than 1.5?

Accepted Answer

A) The firm should increase in value each time it accepts a new project. 
B) The firm is most likely steadily losing value. 
C) The price of the firm's stock should remain constant. 
D) The net present value of each new project is zero. 
E) The internal rate of return on each new project is zero. 
A) The firm should increase in value each time it accepts a new project. 
B) The firm is most likely steadily losing value. 
C) The price of the firm's stock should remain constant. 
D) The net present value of each new project is zero. 
E) The internal rate of return on each new project is zero.

Question 18

Which one of the following methods of analysis has the greatest bias toward short-term projects?

Accepted Answer

A) Net present value 
B) Internal rate of return 
C) Average accounting return 
D) Profitability index 
E) Payback 
A) Net present value 
B) Internal rate of return 
C) Average accounting return 
D) Profitability index 
E) Payback

Question 19

The profitability index reflects the value created per dollar:

Accepted Answer

A) invested. 
B) of sales. 
C) of net income. 
D) of taxable income. 
E) of shareholders' equity. 
A) invested. 
B) of sales. 
C) of net income. 
D) of taxable income. 
E) of shareholders' equity.

Question 20

The average net income of a project divided by the project's average book value is referred to as the project's:

Accepted Answer

A) required return. 
B) market rate of return. 
C) internal rate of return. 
D) average accounting return. 
E) discounted rate of return. 
A) required return. 
B) market rate of return. 
C) internal rate of return. 
D) average accounting return. 
E) discounted rate of return.

Which one of the following methods of analysis ignores cash flows?

A project has the following cash flows.What is the payback period? Year Cash Flow 0 -\ 28,000 1 11,600 2 11,600 3 6,600 4 6,600

If an investment is producing a return that is equal to the required return,the investment's net present value will be:

Which one of the following methods of analysis is most appropriate to use when two investments are mutually exclusive?

A project has expected cash inflows,starting with Year 1,of $900,$1,200,$1,500,and finally in Year 4,$2,000.The profitability index is 1.11 and the discount rate is 12 percent.What is the initial cost of the project?

You are using a net present value profile to compare Projects A and B,which are mutually exclusive.Which one of the following statements correctly applies to the crossover point between these two?

Greenbriar Cotton Mill is spending $284,000 to update its facility.The company estimates that this investment will improve its cash.inflows by $50,500 a year for 8 years.What is the payback period?

A firm is reviewing a project that has an initial cost of $67,000.The project will produce annual cash inflows,starting with Year 1,of $8,000,$13,400,$18,600,$24,100,and finally in Year 5,$37,900.What is the profitability index if the discount rate is 11 percent?

The modified internal rate of return is specifically designed to address the problems associated with:

Which one of the following analytical methods is based on net income?

You were recently hired by a firm as a project analyst.The owner of the firm is unfamiliar with financial analysis and wants to know only what the expected dollar return is per dollar spent on a given project.Which financial method of analysis will provide the information that the owner requests?

What is the net present value of a project that has an initial cost of $42,700 and produces cash inflows of $9,250 a year for 9 years if the discount rate is 14.65 percent?

Based on the most recent survey information presented in your textbook,CFOs tend to use which two methods of investment analysis the most frequently?

Which one of the following is true if the managers of a firm accept only projects that have a profitability index greater than 1.5?

Which one of the following methods of analysis has the greatest bias toward short-term projects?

The profitability index reflects the value created per dollar:

The average net income of a project divided by the project's average book value is referred to as the project's:

Introduction to Financial Management

Financial Statements,Taxes,and Cash Flow

Working With Financial Statements

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Equity Markets and Stock Valuation

Making Capital Investment Decisions

Some Lessons From Capital Market History

Risk and Return

Cost of Capital

Leverage and Capital Structure

Dividends and Dividend Policy

Raising Capital

Short-Term Financial Planning

Working Capital Management

International Aspects of Financial Management

Filters

Exam 8: Net Present Value and Other Investment Criteria

Which one of the following methods of analysis ignores cash flows?

A project has the following cash flows.What is the payback period? Year Cash Flow 0 -\ 28,000 1 11,600 2 11,600 3 6,600 4 6,600

If an investment is producing a return that is equal to the required return,the investment's net present value will be:

Which one of the following methods of analysis is most appropriate to use when two investments are mutually exclusive?

A project has expected cash inflows,starting with Year 1,of $900,$1,200,$1,500,and finally in Year 4,$2,000.The profitability index is 1.11 and the discount rate is 12 percent.What is the initial cost of the project?

You are using a net present value profile to compare Projects A and B,which are mutually exclusive.Which one of the following statements correctly applies to the crossover point between these two?

Greenbriar Cotton Mill is spending $284,000 to update its facility.The company estimates that this investment will improve its cash.inflows by $50,500 a year for 8 years.What is the payback period?

A firm is reviewing a project that has an initial cost of $67,000.The project will produce annual cash inflows,starting with Year 1,of $8,000,$13,400,$18,600,$24,100,and finally in Year 5,$37,900.What is the profitability index if the discount rate is 11 percent?

The modified internal rate of return is specifically designed to address the problems associated with:

Which one of the following analytical methods is based on net income?

You were recently hired by a firm as a project analyst.The owner of the firm is unfamiliar with financial analysis and wants to know only what the expected dollar return is per dollar spent on a given project.Which financial method of analysis will provide the information that the owner requests?

What is the net present value of a project that has an initial cost of $42,700 and produces cash inflows of $9,250 a year for 9 years if the discount rate is 14.65 percent?

Based on the most recent survey information presented in your textbook,CFOs tend to use which two methods of investment analysis the most frequently?

Which one of the following is true if the managers of a firm accept only projects that have a profitability index greater than 1.5?

Which one of the following methods of analysis has the greatest bias toward short-term projects?

The profitability index reflects the value created per dollar:

The average net income of a project divided by the project's average book value is referred to as the project's:

Introduction to Financial Management

Financial Statements,Taxes,and Cash Flow

Working With Financial Statements

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Equity Markets and Stock Valuation

Making Capital Investment Decisions

Some Lessons From Capital Market History

Risk and Return

Cost of Capital

Leverage and Capital Structure

Dividends and Dividend Policy

Raising Capital

Short-Term Financial Planning

Working Capital Management

International Aspects of Financial Management

Filters