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

Which rate-based decision statistic measures the excess return (the amount above and beyond the cost of capital for a project),rather than the gross return?

How many possible IRRs could you find for the following set of cash flows?

Why is a project's cost not an appropriate benchmark for its NPV?

Compute the NPV statistic for Project U given the following cash flows and if the appropriate cost of capital is 9 percent. Project U

Compute the NPV for Project X and accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 9 percent.

Compare and contrast the IRR and the MIRR statistic.

Which of these is a capital budgeting technique that generates decision rules and associated metrics for choosing projects based upon the implicit expected geometric average of a project's rate of return?

A project costs $91,000 today and is expected to generate cash flows of $11,000 per year for the next 20 years.The firm has a cost of capital of 8 percent.Should this project be accepted,and why?

A capital budgeting method that converts a project's cash flows using a more consistent reinvestment rate prior to applying the IRR decision rule is referred to as:

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

Compute the PI statistic for Project Q 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 12 percent. Project Q

Compute the payback statistic for Project X 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 10 percent and the maximum allowable payback is five years.

Which of the following statements is correct?

Define and evaluate the net present value (NPV)method of evaluating capital investment opportunities.

Rate-based statistics represent summary cash flows,and these summaries tend to lose which two important details?

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

Which of the following statements is correct?

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

Which of the following is a technique for evaluating capital projects that tells how long it will take a firm to earn back the money invested in a project plus interest at market rates?

Suppose you have a project whose discounted payback is equal to its termination date.What can you say for sure about its PI?