Question 1

The net present value profile illustrates how the net present value of an investment is affected by which one of the following?

Accepted Answer

A) Project's initial cost 
B) Discount rate 
C) Timing of the project's cash inflows 
D) Inflation rate 
E) Real rate of return 
A) Project's initial cost 
B) Discount rate 
C) Timing of the project's cash inflows 
D) Inflation rate 
E) Real rate of return

Question 2

Which one of the following methods of analysis is most similar to computing the return on assets (ROA)?

Accepted Answer

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

Question 3

The Black Horse is currently considering a project that will produce cash inflows of $11,000 a year for three years followed by $6,500 in Year 4.The cost of the project is $38,000.What is the profitability index if the discount rate is 9 percent?

Accepted Answer

A) .85 
B) .93 
C) 1.04 
D) 1.09 
E) 1.12 
A) .85 
B) .93 
C) 1.04 
D) 1.09 
E) 1.12

Question 4

What is the net present value of the following cash flows if the relevant discount rate is 11.4 percent? $$\begin{array} { | c | r | } 
\hline \text { Year } & \text { Cash Flow } \
\hline 0 & - \$ 32,400 \
\hline 1 & 10,620 \
\hline 2 & 16,800 \
\hline 3 & - 3,110 \
\hline 4 & 26,600 \
\hline
\end{array}$$

Accepted Answer

A) $4,887.26 
B) $5,006.19 
C) $8,215.46 
D) $13,058.39 
E) $18,519.71 
A) $4,887.26 
B) $5,006.19 
C) $8,215.46 
D) $13,058.39 
E) $18,519.71

Question 5

You are making an investment of $110,000 and require a rate of return of14.6 percent.You expect to receive $48,000 in the first year,.$52,500 in the second year,and $55,000 in the third year.There will be a cash outflow of $900 in the fourth year to close out the.investment.What is the net present value of this investment?

Accepted Answer

A) $7,881.55 
B) $4,305.56 
C) $1,879.63 
D) $633.33 
E) $8,534.25 
A) $7,881.55 
B) $4,305.56 
C) $1,879.63 
D) $633.33 
E) $8,534.25

Question 6

Which one of the following statements is correct?

Accepted Answer

A) A longer payback period is preferred over a shorter payback period. 
B) The payback rule states that you should accept a project if the payback period is less than one year. 
C) The payback period ignores the time value of money. 
D) The payback rule is biased in favor of long-term projects. 
E) The payback period considers the timing and amount of all of a project's cash flows. 
A) A longer payback period is preferred over a shorter payback period. 
B) The payback rule states that you should accept a project if the payback period is less than one year. 
C) The payback period ignores the time value of money. 
D) The payback rule is biased in favor of long-term projects. 
E) The payback period considers the timing and amount of all of a project's cash flows.

Question 7

What is the payback period for a project with the following cash flows? $$\begin{array} { | c | r | } 
\hline \text { Year } & \text { Cash Flow } \
\hline 0 & - \$ 75,000 \
\hline 1 & 15,000 \
\hline 2 & 23,000 \
\hline 3 & 35,000 \
\hline 4 & 25,000 \
\hline
\end{array}$$

Accepted Answer

A) 2.56 years 
B) 2.89 years 
C) 3.08 years 
D) 3.24 years 
E) Never 
A) 2.56 years 
B) 2.89 years 
C) 3.08 years 
D) 3.24 years 
E) Never

Question 8

Which one of the following is an indicator that an investment is acceptable? Assume cash flows are conventional.

Accepted Answer

A) Modified internal rate of return that is equal to zero 
B) Profitability index of zero 
C) Internal rate of return that exceeds the required return 
D) Payback period that exceeds the required period 
E) Negative average accounting return 
A) Modified internal rate of return that is equal to zero 
B) Profitability index of zero 
C) Internal rate of return that exceeds the required return 
D) Payback period that exceeds the required period 
E) Negative average accounting return

Question 9

Chestnut Tree Farms has identified the following two mutually exclusive projects: $$\begin{array} { | r | r | r | } 
\hline \text { Year } & \text { Cash Flow }  & \underline { \text { Cash } } \
&{ ( \mathrm { A } ) }  & \underline { \text { Flow } ( \mathrm { B } ) } \
\hline 0 & - \$ 40,000 & - \$ 40,000 \
\hline 1 & 11,300 & 17,400 \
\hline 2 & 14,800 & 14,100 \
\hline 3 & 13,700 & 12,900 \
\hline 4 & 7,900 & 2,200 \
\hline
\end{array}$$ Over what range of discount rates would you choose Project A?

Accepted Answer

A) 7.13 percent or less 
B) 7.13 percent or more 
C) 6.38 percent or more 
D) 6.38 percent or less 
E) 6.57 percent or more 
A) 7.13 percent or less 
B) 7.13 percent or more 
C) 6.38 percent or more 
D) 6.38 percent or less 
E) 6.57 percent or more

Question 10

Generally speaking,payback is best used to evaluate which type of projects?

Accepted Answer

A) Low-cost, short-term 
B) High-cost, short-term 
C) Low-cost, long-term 
D) High-cost, long-term 
E) Any size of long-term project 
A) Low-cost, short-term 
B) High-cost, short-term 
C) Low-cost, long-term 
D) High-cost, long-term 
E) Any size of long-term project

Question 11

Net present value involves discounting an investment's:

Accepted Answer

A) assets. 
B) future profits. 
C) liabilities. 
D) costs. 
E) future cash flows. 
A) assets. 
B) future profits. 
C) liabilities. 
D) costs. 
E) future cash flows.

Question 12

The net present value of an investment represents the difference between the investment's:

Accepted Answer

A) cash inflows and outflows. 
B) cost and its net profit. 
C) cost and its market value. 
D) cash flows and its profits. 
E) assets and liabilities. 
A) cash inflows and outflows. 
B) cost and its net profit. 
C) cost and its market value. 
D) cash flows and its profits. 
E) assets and liabilities.

Question 13

You are considering the following two mutually exclusive projects.What is the crossover point? $$\begin{array} { | c | r | r | } 
\hline \text { Year } & \text { Project A } & \text { Project B } \
\hline 0 & - \$ 52,000 & - \$ 52,000 \
\hline 1 & 0 & 12,000 \
\hline 2 & 33,000 & 29,000 \
\hline 3 & 40,000 & 27,000 \
\hline
\end{array}$$

Accepted Answer

A) 20.76 percent 
B) 23.72 percent 
C) 25.89 percent 
D) 18.79 percent 
E) 22.08 percent 
A) 20.76 percent 
B) 23.72 percent 
C) 25.89 percent 
D) 18.79 percent 
E) 22.08 percent

Question 14

An investment has an initial cost of $300,000 and a life of four years.This investment will be depreciated by $60,000 a year and will generate the net income shown below.Should this project be accepted based on the average accounting rate of return (AAR)if the required rate is 9.5 percent? Why or why not? $$\begin{array} { | c | r | } 
\hline \text { Year } & \text { Net Income } \
\hline 1 & \$ 14,500 \
\hline 2 & 16,900 \
\hline 3 & 19,600 \
\hline 4 & 23,700 \
\hline
\end{array}$$

Accepted Answer

A) Yes, because the AAR less than 9.5 percent 
B) Yes, because the AAR is 9.5 percent 
C) Yes, because the AAR is greater than 9.5 percent 
D) No, because the AAR is 9.5 percent 
E) No, because the AAR is greater than 9.5 percent 
A) Yes, because the AAR less than 9.5 percent 
B) Yes, because the AAR is 9.5 percent 
C) Yes, because the AAR is greater than 9.5 percent 
D) No, because the AAR is 9.5 percent 
E) No, because the AAR is greater than 9.5 percent

Question 15

What is the IRR of the following set of cash flows? $$\begin{array} { | c | r | } 
\hline \text { Year } & \text { Cash Flow } \
\hline 0 & - \$ 61,300 \
\hline 1 & 18,900 \
\hline 2 & 64,500 \
\hline 3 & 7,600 \
\hline
\end{array}$$

Accepted Answer

A) 12.93 percent 
B) 14.90 percent 
C) 23.86 percent 
D) 16.33 percent 
E) 17.78 percent 
A) 12.93 percent 
B) 14.90 percent 
C) 23.86 percent 
D) 16.33 percent 
E) 17.78 percent

Question 16

You are considering an investment for which you require a rate of return of 8.5 percent.The investment costs $67,400 and will produce.cash inflows of $25,720 for three years.Should you accept this project based on its internal rate of return? Why or why not?

Accepted Answer

A) Yes; because the IRR is 9.51 percent 
B) Yes; because the IRR is 7.08 percent 
C) Yes; because the IRR is 6.67 percent 
D) No; because the IRR is 7.08 percent 
E) No'; because the IRR is 9.51 percent 
A) Yes; because the IRR is 9.51 percent 
B) Yes; because the IRR is 7.08 percent 
C) Yes; because the IRR is 6.67 percent 
D) No; because the IRR is 7.08 percent 
E) No'; because the IRR is 9.51 percent

Question 17

Corner Restaurant is considering a project with an initial cost of $211,600.The project will not produce any cash flows for the first three years.Starting in Year 4,the project will produce cash inflows of $151,000 a year for three years.This project is risky,so the firm has assigned it a discount rate of 18.6 percent.What is the project's net present value?

Accepted Answer

A) $113,585.57 
B) -$4,591.11 
C) $51,786.86 
D) $2,255.56 
E) -$16,670.67 
A) $113,585.57 
B) -$4,591.11 
C) $51,786.86 
D) $2,255.56 
E) -$16,670.67

Question 18

The reinvestment approach to the modified internal rate of return:

Accepted Answer

A) individually discounts each separate cash flow back to the present. 
B) reinvests all the cash flows, including the initial cash flow, to the end of the project. 
C) discounts all negative cash flows to the present and compounds all positive cash flows to the end of the project. 
D) discounts all negative cash flows back to the present and combines them with the initial cost. 
E) compounds all of the cash flows, except for the initial cash flow, to the end of the project. 
A) individually discounts each separate cash flow back to the present. 
B) reinvests all the cash flows, including the initial cash flow, to the end of the project. 
C) discounts all negative cash flows to the present and compounds all positive cash flows to the end of the project. 
D) discounts all negative cash flows back to the present and combines them with the initial cost. 
E) compounds all of the cash flows, except for the initial cash flow, to the end of the project.

Question 19

Which one of the following methods of analysis ignores the time value of money?

Accepted Answer

A) Net present value 
B) Internal rate of return 
C) Discounted cash flow analysis 
D) Payback 
E) Profitability index 
A) Net present value 
B) Internal rate of return 
C) Discounted cash flow analysis 
D) Payback 
E) Profitability index

Question 20

Which one of the following is most closely related to the net present value profile?

Accepted Answer

A) Internal rate of return 
B) Average accounting return 
C) Profitability index 
D) Payback 
E) Discounted payback 
A) Internal rate of return 
B) Average accounting return 
C) Profitability index 
D) Payback 
E) Discounted payback

The net present value profile illustrates how the net present value of an investment is affected by which one of the following?

Which one of the following methods of analysis is most similar to computing the return on assets (ROA)?

The Black Horse is currently considering a project that will produce cash inflows of $11,000 a year for three years followed by $6,500 in Year 4.The cost of the project is $38,000.What is the profitability index if the discount rate is 9 percent?

What is the net present value of the following cash flows if the relevant discount rate is 11.4 percent? Year Cash Flow 0 -\ 32,400 1 10,620 2 16,800 3 -3,110 4 26,600

Which one of the following statements is correct?

What is the payback period for a project with the following cash flows? Year Cash Flow 0 -\ 75,000 1 15,000 2 23,000 3 35,000 4 25,000

Which one of the following is an indicator that an investment is acceptable? Assume cash flows are conventional.

Chestnut Tree Farms has identified the following two mutually exclusive projects: Year Cash Flow () 0 -\ 40,000 -\ 40,000 1 11,300 17,400 2 14,800 14,100 3 13,700 12,900 4 7,900 2,200 Over what range of discount rates would you choose Project A?

Generally speaking,payback is best used to evaluate which type of projects?

Net present value involves discounting an investment's:

The net present value of an investment represents the difference between the investment's:

You are considering the following two mutually exclusive projects.What is the crossover point? Year Project A Project B 0 -\ 52,000 -\ 52,000 1 0 12,000 2 33,000 29,000 3 40,000 27,000

What is the IRR of the following set of cash flows? Year Cash Flow 0 -\ 61,300 1 18,900 2 64,500 3 7,600

You are considering an investment for which you require a rate of return of 8.5 percent.The investment costs $67,400 and will produce.cash inflows of $25,720 for three years.Should you accept this project based on its internal rate of return? Why or why not?

The reinvestment approach to the modified internal rate of return:

Which one of the following methods of analysis ignores the time value of money?

Which one of the following is most closely related to the net present value profile?

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

The net present value profile illustrates how the net present value of an investment is affected by which one of the following?

Which one of the following methods of analysis is most similar to computing the return on assets (ROA)?

The Black Horse is currently considering a project that will produce cash inflows of $11,000 a year for three years followed by $6,500 in Year 4.The cost of the project is $38,000.What is the profitability index if the discount rate is 9 percent?

What is the net present value of the following cash flows if the relevant discount rate is 11.4 percent? Year Cash Flow 0 -\ 32,400 1 10,620 2 16,800 3 -3,110 4 26,600

Which one of the following statements is correct?

What is the payback period for a project with the following cash flows? Year Cash Flow 0 -\ 75,000 1 15,000 2 23,000 3 35,000 4 25,000

Which one of the following is an indicator that an investment is acceptable? Assume cash flows are conventional.

Chestnut Tree Farms has identified the following two mutually exclusive projects: Year Cash Flow () 0 -\ 40,000 -\ 40,000 1 11,300 17,400 2 14,800 14,100 3 13,700 12,900 4 7,900 2,200 Over what range of discount rates would you choose Project A?

Generally speaking,payback is best used to evaluate which type of projects?

Net present value involves discounting an investment's:

The net present value of an investment represents the difference between the investment's:

You are considering the following two mutually exclusive projects.What is the crossover point? Year Project A Project B 0 -\ 52,000 -\ 52,000 1 0 12,000 2 33,000 29,000 3 40,000 27,000

What is the IRR of the following set of cash flows? Year Cash Flow 0 -\ 61,300 1 18,900 2 64,500 3 7,600

You are considering an investment for which you require a rate of return of 8.5 percent.The investment costs $67,400 and will produce.cash inflows of $25,720 for three years.Should you accept this project based on its internal rate of return? Why or why not?

The reinvestment approach to the modified internal rate of return:

Which one of the following methods of analysis ignores the time value of money?

Which one of the following is most closely related to the net present value profile?

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