Exam 7: Net Present Value and Other Investment Rules

A project has an initial cost of $10,800 and produces cash inflows of $4,100,$4,800,and $5,600 over Years 1 to 3,respectively.What is the discounted payback period if the required rate of return is 11 percent?

The internal rate of return:

One advantage of the payback method of project analysis is the method's:

Which one of the following is the best example of two mutually exclusive projects?

Benji's has an opportunity with an initial cash flow of $48,900 and future cash flows of -$31,300 in Year 1 and -$21,600 in Year 2.The discount rate is 7 percent.Should this project be accepted or rejected? Why?

A project has an initial cost of $68,300 and cash flows of $38,700,$102,300,and -$18,100 for Years 1 to 3,respectively.If the required rate of return for this investment is 8.7 percent,should you accept it based solely on the internal rate of return rule? Why or why not?

The net present value of a project is projected at $210.How should this amount be interpreted?

Provide an example where payback should be used as the primary determination of whether or not a project should be accepted.

A project has an initial cost of $12,100 and cash flows of -$2,100,$5,800,$16,600,and -$800 for Years 1 to 4,respectively.How many IRR's will this project have?

It will cost $3,200 to acquire a small ice cream cart.Cart sales are expected to be $1,500 a year for three years.After the three years,the cart is expected to be worthless.What is the payback period?

The payback method is a convenient and useful tool because:

What is the internal rate of return on an investment that has an initial cost of $38,400 and projected cash inflows of $11,200,$19,600,and $18,100 for Years 1 to 3,respectively?

You are considering a project with the following data: IRR = 8.7 percent;PI = .98;NPV = -$393;Payback period = 2.44 years.Which one of the following statements is correct given this information?

The length of time required for an investment to generate cash flows sufficient to recover the initial cost of the investment is called the:

Turner Enterprises is analyzing a project that is expected to have annual cash flows of $77,400,$21,300 and -$6,200 for Years 1 to 3,respectively.The initial cash outlay is $84,900 and the discount rate is 11 percent.What is the modified IRR?

Uptown Developers is considering two projects.Project A consists of building a wholesale book outlet on the firm's downtown lot.Project B consists of building a sit-down restaurant on that same lot.The lot can only accommodate one of the projects.When trying to decide whether to build the book outlet or the restaurant,management should rely most heavily on the analysis results from which one of these methods?

All else constant,the net present value of a typical investment project increases when:

A project requires an initial investment of $21,600 and will produce cash inflows of $4,900,$14,200,and $8,700 over the next three years,respectively.What is the project's NPV at a required return of 14 percent?

Which one of these methods uses accounting values rather than financial values?

Project Water has an initial cost of $639,700 and projected cash flows of $288,000,$319,000,and $165,000 for Years 1 to 3,respectively.Project Aqua has an initial cost of $411,200 and projected cash flows of $186,000,$178,000,and $145,000 for Years 1 to 3,respectively.What is the incremental IRR of these two mutually exclusive projects?