Question 1

The least-used capital budgeting technique in industry is:

Accepted Answer

A) NPV. 
B) IRR. 
C) P\payback. 
D) MIRR. 
A) NPV. 
B) IRR. 
C) P\payback. 
D) MIRR.

Question 2

Which of the following is a capital budgeting technique that converts a project's cash flows using a more consistent reinvestment rate prior to applying the Internal Rate of Return,IRR,decision rule?

Accepted Answer

A) Discounted payback 
B) Net present value 
C) Modified internal rate of return 
D) Profitability index 
A) Discounted payback 
B) Net present value 
C) Modified internal rate of return 
D) Profitability index

Question 3

Neither payback period nor discounted payback period techniques for evaluating capital projects account for:

Accepted Answer

A) time value of money. 
B) market rates of return. 
C) cash flows that occur after payback. 
D) cash flows that occur during payback. 
A) time value of money. 
B) market rates of return. 
C) cash flows that occur after payback. 
D) cash flows that occur during payback.

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 PI 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

Which of the following best describes the NPV profile?

Accepted Answer

A) A graph of a project's NPV as a function of possible IRRs. 
B) A graph of a project's NPV over time. 
C) A graph of a project's NPV as a function of possible capital costs. 
D) None of these statements is correct. 
A) A graph of a project's NPV as a function of possible IRRs. 
B) A graph of a project's NPV over time. 
C) A graph of a project's NPV as a function of possible capital costs. 
D) None of these statements is correct.

Question 6

Explain the differing reinvestment rate assumptions of NPV and IRR.

Accepted Answer

IRR implies that any cash inflows will b

Question 7

Calculate the rate at which the follow projects' NPV profiles cross and explain when IRR will give the correct answer when choosing between these two mutually exclusive projects.

Accepted Answer

@#IMG-DLM&
Next,calculate IRR for this new set of

Question 8

Which of the following is incorrect regarding the IRR statistic?

Accepted Answer

A) For independent projects, IRR will give the same accept/reject decision as NPV. 
B) For the IRR statistic to give a different accept/reject decision from NPV, the cash flows must be non-normal and the projects must be mutually exclusive. 
C) To solve for the IRR, one can simply solve the NPV formula for the rate that will make the NPV equal to zero. 
D) None of these statements is incorrect. 
A) For independent projects, IRR will give the same accept/reject decision as NPV. 
B) For the IRR statistic to give a different accept/reject decision from NPV, the cash flows must be non-normal and the projects must be mutually exclusive. 
C) To solve for the IRR, one can simply solve the NPV formula for the rate that will make the NPV equal to zero. 
D) None of these statements is incorrect.

Question 9

The MIRR statistic is different from the IRR statistic in that:

Accepted Answer

A) the MIRR assumes that the cash inflows can be reinvested at the cost of capital. 
B) the MIRR assumes that the cash inflows can be reinvested at the IRR. 
C) the MIRR uses weighted-average dollars. 
D) the MIRR uses input from the NPV whereas the IRR does not. 
A) the MIRR assumes that the cash inflows can be reinvested at the cost of capital. 
B) the MIRR assumes that the cash inflows can be reinvested at the IRR. 
C) the MIRR uses weighted-average dollars. 
D) the MIRR uses input from the NPV whereas the IRR does not.

Question 10

Define and compare the use of the payback (PB)and discounted payback (DPB)methods for evaluating capital investment opportunities.

Accepted Answer

The payback technique tells how long it

Question 11

Projects A and B are mutually exclusive.Project A costs $10,000 and is expected to generate cash inflows of $4,000 for four years.Project B costs $10,000 and is expected to generate a single cash flow in year 4 of $20,000.The cost of capital is 12 percent.Which project would you accept and why?

Accepted Answer

A) Project B because it has the higher NPV. 
B) Project B because it has the higher IRR. 
C) Project A because it has the higher NPV. 
D) Project A because it has the higher IRR. 
A) Project B because it has the higher NPV. 
B) Project B because it has the higher IRR. 
C) Project A because it has the higher NPV. 
D) Project A because it has the higher IRR.

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 MIRR 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

Compute the PI statistic for Project Z and advise the firm whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent.
Project Z

Accepted Answer

A) The project's PI is 8.48 percent and the project should be accepted. 
B) The project's PI is 8.48 percent and the project should be rejected. 
C) The project's PI is 16.48 percent and the project should be accepted. 
D) The project's PI is 21.48 percent and the project should be accepteD.Step 1: Find NPV using financial calculator: NPV = 214.78; Step 2: 214.78/1,000 = 21.48 percent and since PI > 0 accept. 
A) The project's PI is 8.48 percent and the project should be accepted. 
B) The project's PI is 8.48 percent and the project should be rejected. 
C) The project's PI is 16.48 percent and the project should be accepted. 
D) The project's PI is 21.48 percent and the project should be accepteD.Step 1: Find NPV using financial calculator: NPV = 214.78; Step 2: 214.78/1,000 = 21.48 percent and since PI > 0 accept.

Question 14

Under what conditions can a rate-based statistic yield a different accept/reject decision than NPV?

Accepted Answer

A) Independent projects that are evaluated at a high cost of capital. 
B) Mutually exclusive projects that are evaluated at a low cost of capital. 
C) Any projects that exhibit differences in scale or timing. 
D) Mutually exclusive projects that exhibit differences in scale or timing. 
A) Independent projects that are evaluated at a high cost of capital. 
B) Mutually exclusive projects that are evaluated at a low cost of capital. 
C) Any projects that exhibit differences in scale or timing. 
D) Mutually exclusive projects that exhibit differences in scale or timing.

Question 15

A project's IRR:

Accepted Answer

A) is the average rate of return necessary to pay back the project's capital providers. 
B) will change with the cost of capital. 
C) is equal to the discounted cash flows divided by the number of cash flows if the cash flows are a perpetuity. 
D) All of these answers are correct. 
A) is the average rate of return necessary to pay back the project's capital providers. 
B) will change with the cost of capital. 
C) is equal to the discounted cash flows divided by the number of cash flows if the cash flows are a perpetuity. 
D) All of these answers are correct.

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 payback decision rule to evaluate this project; should it be accepted or rejected?

Accepted Answer

A) 2.45 years, accept 
B) 2.83 years, accept 
C) 3.45 years, accept 
D) 3.83 years, reject 
A) 2.45 years, accept 
B) 2.83 years, accept 
C) 3.45 years, accept 
D) 3.83 years, reject

Question 17

Explain what a PI of 35.23 percent would signify.

Accepted Answer

The PI of 35.23 percent is telling us th

Question 18

All of the following capital budgeting tools are suitable for non-normal cash flows EXCEPT:

Accepted Answer

A) MIRR. 
B) profitability index. 
C) payback. 
D) NPV. 
A) MIRR. 
B) profitability index. 
C) payback. 
D) NPV.

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 10 percent,and that the maximum allowable payback and discounted payback statistics for the project are three and three and a half years,respectively.Use the payback decision to evaluate this project; should it be accepted or rejected?

Accepted Answer

A) Payback = 4.90 years; reject 
B) Payback = 4.40 years; reject 
C) Payback = 5.80 years; reject 
D) Payback > 6.00 years; reject 
A) Payback = 4.90 years; reject 
B) Payback = 4.40 years; reject 
C) Payback = 5.80 years; reject 
D) Payback > 6.00 years; reject

Question 20

A company is considering two mutually exclusive projects,A and B Project A requires an initial investment of $200, followed by cash flows of $185, $40, and $15.Project B requires an initial investment of $200, followed by cash flows of $0, $50, and $230.What is the IRR of the project that is best for the company's shareholders? The firm's cost of capital is 10 percent.

Accepted Answer

A) 15.45 percent 
B) 15.12 percent 
C) 12.71 percent 
A) 15.45 percent 
B) 15.12 percent 
C) 12.71 percent

The least-used capital budgeting technique in industry is:

Which of the following is a capital budgeting technique that converts a project's cash flows using a more consistent reinvestment rate prior to applying the Internal Rate of Return,IRR,decision rule?

Neither payback period nor discounted payback period techniques for evaluating capital projects account for:

Which of the following best describes the NPV profile?

Explain the differing reinvestment rate assumptions of NPV and IRR.

Calculate the rate at which the follow projects' NPV profiles cross and explain when IRR will give the correct answer when choosing between these two mutually exclusive projects.

Which of the following is incorrect regarding the IRR statistic?

The MIRR statistic is different from the IRR statistic in that:

Define and compare the use of the payback (PB)and discounted payback (DPB)methods for evaluating capital investment opportunities.

Projects A and B are mutually exclusive.Project A costs $10,000 and is expected to generate cash inflows of $4,000 for four years.Project B costs $10,000 and is expected to generate a single cash flow in year 4 of $20,000.The cost of capital is 12 percent.Which project would you accept and why?

Compute the PI statistic for Project Z and advise the firm whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. Project Z

Under what conditions can a rate-based statistic yield a different accept/reject decision than NPV?

A project's IRR:

Explain what a PI of 35.23 percent would signify.

All of the following capital budgeting tools are suitable for non-normal cash flows EXCEPT:

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

The least-used capital budgeting technique in industry is:

Which of the following is a capital budgeting technique that converts a project's cash flows using a more consistent reinvestment rate prior to applying the Internal Rate of Return,IRR,decision rule?

Neither payback period nor discounted payback period techniques for evaluating capital projects account for:

Which of the following best describes the NPV profile?

Explain the differing reinvestment rate assumptions of NPV and IRR.

Calculate the rate at which the follow projects' NPV profiles cross and explain when IRR will give the correct answer when choosing between these two mutually exclusive projects.

Which of the following is incorrect regarding the IRR statistic?

The MIRR statistic is different from the IRR statistic in that:

Define and compare the use of the payback (PB)and discounted payback (DPB)methods for evaluating capital investment opportunities.

Projects A and B are mutually exclusive.Project A costs $10,000 and is expected to generate cash inflows of $4,000 for four years.Project B costs $10,000 and is expected to generate a single cash flow in year 4 of $20,000.The cost of capital is 12 percent.Which project would you accept and why?

Compute the PI statistic for Project Z and advise the firm whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. Project Z

Under what conditions can a rate-based statistic yield a different accept/reject decision than NPV?

A project's IRR:

Explain what a PI of 35.23 percent would signify.

All of the following capital budgeting tools are suitable for non-normal cash flows EXCEPT:

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