Question 1

Which of these describe groups or pairs of projects where you can accept one but not all?

Accepted Answer

A) Dependent 
B) Independent 
C) Mutually exclusive 
D) Mutually dependent 
A) Dependent 
B) Independent 
C) Mutually exclusive 
D) Mutually dependent C

Question 2

How does profitability index differ from the other statistics discussed in this chapter?

Accepted Answer

It measures the gross return.

Question 3

Suppose your firm is considering two mutually exclusive,required projects with the cash flows shown as follows.The required rate of return on projects of both of their risk class is 10 percent,and the maximum allowable payback and discounted payback statistic for the projects are two and a half and three and a half years,respectively.
Use the payback decision rule to evaluate these projects; which one(s)should be accepted or rejected?

Accepted Answer

A) Accept both A and B 
B) Accept neither A nor B 
C) Accept A, reject B 
D) Reject A, accept B 
A) Accept both A and B 
B) Accept neither A nor B 
C) Accept A, reject B 
D) Reject A, accept B D

Question 4

Suppose your firm is considering two mutually exclusive,required projects with the cash flows shown as follows.The required rate of return on projects of both of their risk class is 8 percent,and the maximum allowable payback and discounted payback statistic for the projects are two and three years,respectively.
Use the discounted payback decision rule to evaluate these projects; which one(s)should be accepted or rejected?

Accepted Answer

A) Accept both A and B 
B) Accept neither A nor B 
C) Accept A, reject B 
D) Reject A, accept B 
A) Accept both A and B 
B) Accept neither A nor B 
C) Accept A, reject B 
D) Reject A, accept B

Question 5

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 8 percent,and that the maximum allowable payback and discounted payback statistic for the project are three and three and a half years,respectively.
Use the MIRR decision rule to evaluate this project; should it be accepted or rejected?

Accepted Answer

A) -10.60 percent, reject 
B) 10.60 percent, accept 
C) -15.33 percent, reject 
D) 15.33 percent, accept 
A) -10.60 percent, reject 
B) 10.60 percent, accept 
C) -15.33 percent, reject 
D) 15.33 percent, accept

Question 6

Compute the NPV statistic for Project Y given the following cash flows and if the appropriate cost of capital is 10 percent.
Project Y

Accepted Answer

A) $894.37 
B) $993.97 
C) $964.72 
D) $1,008.03 
A) $894.37 
B) $993.97 
C) $964.72 
D) $1,008.03

Question 7

A firm is evaluating a potential investment that is expected to generate cash flows of $100 in years 1 through 4 and $400 in years 5 through 7.The initial investment is $750.What is the payback for this investment?

Accepted Answer

A) 4.88 years 
B) 4.48 years 
C) 5.88 years 
D) 5.48 years 
A) 4.88 years 
B) 4.48 years 
C) 5.88 years 
D) 5.48 years

Question 8

Is the following set of cash flows depicted normal or non-normal? Explain.

Accepted Answer

Normal.When initial cash flows are negat

Question 9

Compute the MIRR for Project Y and accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent.

Accepted Answer

A) 7.62 percent, accept 
B) 7.62 percent, reject 
C) 47.09 percent, accept 
D) 47.09 percent, reject 
A) 7.62 percent, accept 
B) 7.62 percent, reject 
C) 47.09 percent, accept 
D) 47.09 percent, reject

Question 10

The net present value decision technique uses a statistic denominated in:

Accepted Answer

A) years. 
B) currency. 
C) a percentage. 
D) time lines. 
A) years. 
B) currency. 
C) a percentage. 
D) time lines.

Question 11

Suppose your firm is considering two mutually exclusive,required projects with the cash flows shown as follows.The required rate of return on projects of both of their risk class is 8 percent,and the maximum allowable payback and discounted payback statistic for the projects are two and three years,respectively.
Use the IRR decision rule to evaluate these projects; which one(s)should be accepted or rejected?

Accepted Answer

A) Accept both A and B 
B) Accept neither A nor B 
C) Accept A, reject B 
D) Reject A, accept B 
A) Accept both A and B 
B) Accept neither A nor B 
C) Accept A, reject B 
D) Reject A, accept B

Question 12

Suppose your firm is considering two independent projects with the cash flows shown as follows.The required rate of return on projects of both of their risk class is 12 percent,and the maximum allowable payback and discounted payback statistic for the projects are two and a half and three years,respectively.
Use the discounted payback decision rule to evaluate these projects; which one(s)should be accepted or rejected?

Accepted Answer

A) Accept both A and B 
B) Accept neither A nor B 
C) Accept A, reject B 
D) Reject A, accept B 
A) Accept both A and B 
B) Accept neither A nor B 
C) Accept A, reject B 
D) Reject A, accept B

Question 13

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 12 percent,and that the maximum allowable payback and discounted payback statistic for the project are two and two and a half years,respectively.
Use the NPV decision rule to evaluate this project; should it be accepted or rejected?

Accepted Answer

A) $9,704.31, reject 
B) $84,140.71, accept 
C) $134,704.31, accept 
D) $150,868.83, accept 
A) $9,704.31, reject 
B) $84,140.71, accept 
C) $134,704.31, accept 
D) $150,868.83, accept

Question 14

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 10 percent,and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years,respectively.Use the discounted payback decision to evaluate this project; should it be accepted or rejected?

Accepted Answer

A) Discounted payback = 4.29 years; accept the project 
B) Discounted payback = 3.97 years; accept the project 
C) Discounted payback > 4.5 years; reject the project 
D) Discounted payback = 4.4 years; accept the project 
A) Discounted payback = 4.29 years; accept the project 
B) Discounted payback = 3.97 years; accept the project 
C) Discounted payback > 4.5 years; reject the project 
D) Discounted payback = 4.4 years; accept the project

Question 15

Compute the discounted payback statistic for Project Y and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent and the maximum allowable discounted payback is three years.

Accepted Answer

A) 3.45 years, reject 
B) 3.86 years, reject 
C) 3.45 years, accept 
D) 3.86 years, accept 
A) 3.45 years, reject 
B) 3.86 years, reject 
C) 3.45 years, accept 
D) 3.86 years, accept

Question 16

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 8 percent,and that the maximum allowable payback and discounted payback statistic for the project are three and three and a half years,respectively.
Use the IRR decision rule to evaluate this project; should it be accepted or rejected?

Accepted Answer

A) -4.95 percent, reject 
B) 4.95 percent, accept 
C) -23.18 percent, reject 
D) 23.18 percent, accept 
A) -4.95 percent, reject 
B) 4.95 percent, accept 
C) -23.18 percent, reject 
D) 23.18 percent, accept

Question 17

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 8 percent,and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years,respectively.Use the IRR decision to evaluate this project; should it be accepted or rejected?

Accepted Answer

A) IRR = 16.92 percent; accept the project 
B) IRR = 7.123 percent; reject the project 
C) IRR = 18.32 percent; accept the project 
D) IRR = 7.59 percent; reject the project 
A) IRR = 16.92 percent; accept the project 
B) IRR = 7.123 percent; reject the project 
C) IRR = 18.32 percent; accept the project 
D) IRR = 7.59 percent; reject the project

Question 18

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 8 percent,and that the maximum allowable payback and discounted payback statistic for the project are three and three and a half years,respectively.
Use the NPV decision rule to evaluate this project; should it be accepted or rejected?

Accepted Answer

A) $35,995.86, reject 
B) $38,875.53, accept 
C) $138,875.53, accept 
D) $238,875.53, accept 
A) $35,995.86, reject 
B) $38,875.53, accept 
C) $138,875.53, accept 
D) $238,875.53, accept

Question 19

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 8 percent,and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years,respectively.Use the MIRR decision to evaluate this project; should it be accepted or rejected?

Accepted Answer

A) MIRR = 13.59 percent; accept the project 
B) MIRR = 7.96 percent; reject the project 
C) MIRR = 7.19 percent; reject the project 
D) MIRR = 12.58 percent; accept the project 
A) MIRR = 13.59 percent; accept the project 
B) MIRR = 7.96 percent; reject the project 
C) MIRR = 7.19 percent; reject the project 
D) MIRR = 12.58 percent; accept the project

Question 20

Suppose your firm is considering two mutually exclusive,required projects with the cash flows shown as follows.The required rate of return on projects of both of their risk class is 10 percent,and the maximum allowable payback and discounted payback statistic for the projects are two and a half and three and a half years,respectively.
Use the NPV decision rule to evaluate these projects; which one(s)should be accepted or rejected?

Accepted Answer

A) Accept both A and B 
B) Accept neither A nor B 
C) Accept A, reject B 
D) Reject A, accept B 
A) Accept both A and B 
B) Accept neither A nor B 
C) Accept A, reject B 
D) Reject A, accept B

Which of these describe groups or pairs of projects where you can accept one but not all?

How does profitability index differ from the other statistics discussed in this chapter?

Compute the NPV statistic for Project Y given the following cash flows and if the appropriate cost of capital is 10 percent. Project Y

A firm is evaluating a potential investment that is expected to generate cash flows of $100 in years 1 through 4 and $400 in years 5 through 7.The initial investment is $750.What is the payback for this investment?

Is the following set of cash flows depicted normal or non-normal? Explain.

Compute the MIRR for Project Y and accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent.

The net present value decision technique uses a statistic denominated in:

Compute the discounted payback statistic for Project Y and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent and the maximum allowable discounted payback is three years.

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Time Value of Money

Valuing Bonds

Valuing Stockspart

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Working Capital and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 13: Weighing Net Present Value and Other Capital Budgeting Criteria

Which of these describe groups or pairs of projects where you can accept one but not all?

How does profitability index differ from the other statistics discussed in this chapter?

Compute the NPV statistic for Project Y given the following cash flows and if the appropriate cost of capital is 10 percent. Project Y

A firm is evaluating a potential investment that is expected to generate cash flows of $100 in years 1 through 4 and $400 in years 5 through 7.The initial investment is $750.What is the payback for this investment?

Is the following set of cash flows depicted normal or non-normal? Explain.

Compute the MIRR for Project Y and accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent.

The net present value decision technique uses a statistic denominated in:

Compute the discounted payback statistic for Project Y and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent and the maximum allowable discounted payback is three years.

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Time Value of Money

Valuing Bonds

Valuing Stockspart

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Working Capital and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters