Question 1

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 the statements are 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 the statements are correct.

Question 2

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 = 4.25 years; accept the project 
B)  Discounted payback = 3.50 years; accept the project 
C)  Discounted payback > 5 years; reject the project 
D)  Discounted payback = 4.67 years; reject the project 
A)  Discounted payback = 4.25 years; accept the project 
B)  Discounted payback = 3.50 years; accept the project 
C)  Discounted payback > 5 years; reject the project 
D)  Discounted payback = 4.67 years; reject the project

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

Question 4

A graph of a project's ________ is a function of cost of capital.

Accepted Answer

A)  internal rate of return 
B)  net present value 
C)  modified internal rate of return 
D)  all choices are a function of cost of capital 
A)  internal rate of return 
B)  net present value 
C)  modified internal rate of return 
D)  all choices are a function of cost of capital

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 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 6

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?

Accepted Answer

A)  Yes, the project should be accepted since it has a NPV = $15,391.23. 
B)  Yes, the project should be accepted since it has a NPV = $13,610.89. 
C)  Yes, the project should be accepted since it has a NPV = $16,999.62. 
D)  None of the options are correct. 
A)  Yes, the project should be accepted since it has a NPV = $15,391.23. 
B)  Yes, the project should be accepted since it has a NPV = $13,610.89. 
C)  Yes, the project should be accepted since it has a NPV = $16,999.62. 
D)  None of the options are correct.

Question 7

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:

Accepted Answer

A)  IRR. 
B)  EAR. 
C)  NPV. 
D)  MIRR. 
A)  IRR. 
B)  EAR. 
C)  NPV. 
D)  MIRR.

Question 8

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 9

Which of the following tools is suitable for choosing between mutually exclusive projects?

Accepted Answer

A)  NPV 
B)  IRR 
C)  MIRR 
D)  None are suitable 
A)  NPV 
B)  IRR 
C)  MIRR 
D)  None are suitable

Question 10

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.

Accepted Answer

A)  3.67 years, accept 
B)  4.67 years, accept 
C)  3.67 years, reject 
D)  4.67 years, reject 
A)  3.67 years, accept 
B)  4.67 years, accept 
C)  3.67 years, reject 
D)  4.67 years, reject

Question 11

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 12

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

Accepted Answer

A)  Payback = 4.44 years; reject 
B)  Payback = 3.44 years; accept 
C)  Payback = 3.54 years; reject 
D)  Payback = 3.24 years; reject 
A)  Payback = 4.44 years; reject 
B)  Payback = 3.44 years; accept 
C)  Payback = 3.54 years; reject 
D)  Payback = 3.24 years; reject

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

Accepted Answer

A)  NPV = $1,766.55; accept the project 
B)  NPV = $892.19; accept the project 
C)  NPV = $1,288.94; accept the project 
D)  NPV = −$104.73; reject the project 
A)  NPV = $1,766.55; accept the project 
B)  NPV = $892.19; accept the project 
C)  NPV = $1,288.94; accept the project 
D)  NPV = −$104.73; reject the project

Question 14

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

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 15

Compute the 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 11 percent and the maximum allowable payback is one year.

Accepted Answer

A)  1.25 years, reject 
B)  1.25 years, accept 
C)  1.33 years, accept 
D)  2.25 years, accept 
A)  1.25 years, reject 
B)  1.25 years, accept 
C)  1.33 years, accept 
D)  2.25 years, accept

Question 16

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

Accepted Answer

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

Question 17

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 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 18

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. 
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.

Question 19

Compute the NPV for Project X with the cash flows shown as follows if the appropriate cost of capital is 10 percent.

Accepted Answer

A)  $183,507.96 
B)  $247,410.67 
C)  $248,962.50 
D)  $262,622.77 
A)  $183,507.96 
B)  $247,410.67 
C)  $248,962.50 
D)  $262,622.77

Question 20

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 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 the following best describes the NPV profile?

A graph of a project's ________ is a function of cost of capital.

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:

Which of the following tools is suitable for choosing between mutually exclusive projects?

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.

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

Compute the 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 11 percent and the maximum allowable payback is one year.

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

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

Compute the NPV for Project X with the cash flows shown as follows if the appropriate cost of capital is 10 percent.

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Working Capital Management and Policies

Filters

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

Which of the following best describes the NPV profile?

A graph of a project's ________ is a function of cost of capital.

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:

Which of the following tools is suitable for choosing between mutually exclusive projects?

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.

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

Compute the 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 11 percent and the maximum allowable payback is one year.

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

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

Compute the NPV for Project X with the cash flows shown as follows if the appropriate cost of capital is 10 percent.

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Working Capital Management and Policies

Filters