Question 1

What is the net present value of a project with the following cash flows if the required rate of return is 9 percent?

Accepted Answer

A)  -$1,574.41 
B)  -$1,208.19 
C)  $5,904.65 
D)  $6,029.09 
E)  $6,311.16 
A)  -$1,574.41 
B)  -$1,208.19 
C)  $5,904.65 
D)  $6,029.09 
E)  $6,311.16

Question 2

-Home Décor & More is considering a proposed project with the following cash flows.Should this project be accepted based on the combination approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 16 percent? Why or why not?

Accepted Answer

A)  Yes;The MIRR is 14.78 percent. 
B)  Yes;The MIRR is 17.42 percent. 
C)  No;The MIRR is 12.91 percent. 
D)  No;The MIRR is 14.78 percent. 
E)  No;The MIRR is 17.42 percent. 
A)  Yes;The MIRR is 14.78 percent. 
B)  Yes;The MIRR is 17.42 percent. 
C)  No;The MIRR is 12.91 percent. 
D)  No;The MIRR is 14.78 percent. 
E)  No;The MIRR is 17.42 percent.

Question 3

The internal rate of return is:

Accepted Answer

A)  the discount rate that makes the net present value of a project equal to the initial cash outlay. 
B)  equivalent to the discount rate that makes the net present value equal to one. 
C)  tedious to compute without the use of either a financial calculator or a computer. 
D)  highly dependent upon the current interest rates offered in the marketplace. 
E)  a better methodology than net present value when dealing with unconventional cash flows. 
A)  the discount rate that makes the net present value of a project equal to the initial cash outlay. 
B)  equivalent to the discount rate that makes the net present value equal to one. 
C)  tedious to compute without the use of either a financial calculator or a computer. 
D)  highly dependent upon the current interest rates offered in the marketplace. 
E)  a better methodology than net present value when dealing with unconventional cash flows.

Question 4

Explain how the internal rate of return (IRR)decision rule is applied to projects with financing type cash flows.

Accepted Answer

For financing type projects,the decision

Question 5

Blue Water Systems is analyzing a project with the following cash flows.Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 14 percent? Why or why not?

Accepted Answer

A)  Yes;The MIRR is 13.48 percent. 
B)  Yes;The MIRR is 17.85 percent. 
C)  Yes;The MIRR is 21.23 percent. 
D)  No;The MIRR is 5.73 percent. 
E)  No;The MIRR is 17.85 percent. 
A)  Yes;The MIRR is 13.48 percent. 
B)  Yes;The MIRR is 17.85 percent. 
C)  Yes;The MIRR is 21.23 percent. 
D)  No;The MIRR is 5.73 percent. 
E)  No;The MIRR is 17.85 percent.

Question 6

-A project will produce cash inflows of $2,800 a year for 4 years with a final cash inflow of $5,700 in year 5.The project's initial cost is $9,500.What is the net present value of this project if the required rate of return is 16 percent?

Accepted Answer

A)  -$311.02 
B)  $1,048.75 
C)  $4,650.11 
D)  $9,188.98 
E)  $11,168.02 
A)  -$311.02 
B)  $1,048.75 
C)  $4,650.11 
D)  $9,188.98 
E)  $11,168.02

Question 7

Consider the following two mutually exclusive projects:  
What is the crossover rate for these two projects?

Accepted Answer

A)  8.22 percent 
B)  8.48 percent 
C)  8.71 percent 
D)  8.75 percent 
E)  8.94 percent 
A)  8.22 percent 
B)  8.48 percent 
C)  8.71 percent 
D)  8.75 percent 
E)  8.94 percent

Question 8

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

Accepted Answer

A)  building a retail store that is attached to a wholesale outlet 
B)  producing both plastic forks and spoons on the same assembly line at the same time 
C)  using an empty warehouse to store both raw materials and finished goods 
D)  promoting two products during the same television commercial 
E)  waiting until a machine finishes molding Product A before being able to mold Product B 
A)  building a retail store that is attached to a wholesale outlet 
B)  producing both plastic forks and spoons on the same assembly line at the same time 
C)  using an empty warehouse to store both raw materials and finished goods 
D)  promoting two products during the same television commercial 
E)  waiting until a machine finishes molding Product A before being able to mold Product B

Question 9

The internal rate of return is defined as the:

Accepted Answer

A)  maximum rate of return a firm expects to earn on a project. 
B)  rate of return a project will generate if the project in financed solely with internal funds. 
C)  discount rate that equates the net cash inflows of a project to zero. 
D)  discount rate which causes the net present value of a project to equal zero. 
E)  discount rate that causes the profitability index for a project to equal zero. 
A)  maximum rate of return a firm expects to earn on a project. 
B)  rate of return a project will generate if the project in financed solely with internal funds. 
C)  discount rate that equates the net cash inflows of a project to zero. 
D)  discount rate which causes the net present value of a project to equal zero. 
E)  discount rate that causes the profitability index for a project to equal zero.

Question 10

-You are analyzing a project and have gathered the following data:  
Based on the net present value of _____,you should _____ the project.

Accepted Answer

A)  -$2,030.75;reject 
B)  -$1,995.84;reject 
C)  -$283.60;accept 
D)  $3,283.60;accept 
E)  $4,109.37;accept 
A)  -$2,030.75;reject 
B)  -$1,995.84;reject 
C)  -$283.60;accept 
D)  $3,283.60;accept 
E)  $4,109.37;accept

Question 11

-What is the profitability index for an investment with the following cash flows given a 14.5 percent required return?

Accepted Answer

A)  0.94 
B)  0.98 
C)  1.02 
D)  1.06 
E)  1.11 
A)  0.94 
B)  0.98 
C)  1.02 
D)  1.06 
E)  1.11

Question 12

You are considering a project with an initial cost of $7,500.What is the payback period for this project if the cash inflows are $1,100,$1,640,$3,800,and $4,500 a year over the next four years,respectively?

Accepted Answer

A)  3.21 years 
B)  3.28 years 
C)  3.36 years 
D)  4.21 years 
E)  4.29 years 
A)  3.21 years 
B)  3.28 years 
C)  3.36 years 
D)  4.21 years 
E)  4.29 years

Question 13

If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery.These projects are considered to be:

Accepted Answer

A)  independent. 
B)  interdependent. 
C)  mutually exclusive. 
D)  economically scaled. 
E)  operationally distinct. 
A)  independent. 
B)  interdependent. 
C)  mutually exclusive. 
D)  economically scaled. 
E)  operationally distinct.

Question 14

Tedder Mining has analyzed a proposed expansion project and determined that the internal rate of return is lower than the firm desires.Which one of the following changes to the project would be most expected to increase the project's internal rate of return?

Accepted Answer

A)  decreasing the required discount rate 
B)  increasing the initial investment in fixed assets 
C)  condensing the firm's cash inflows into fewer years without lowering the total amount of those inflows 
D)  eliminating the salvage value 
E)  decreasing the amount of the final cash inflow 
A)  decreasing the required discount rate 
B)  increasing the initial investment in fixed assets 
C)  condensing the firm's cash inflows into fewer years without lowering the total amount of those inflows 
D)  eliminating the salvage value 
E)  decreasing the amount of the final cash inflow

Question 15

-An investment has the following cash flows and a required return of 13 percent.Based on IRR,should this project be accepted? Why or why not?

Accepted Answer

A)  No;The IRR exceeds the required return by about 0.06 percent. 
B)  No;The IRR is less than the required return by about 1.53 percent. 
C)  Yes;The IRR exceeds the required return by about 0.06 percent. 
D)  Yes;The IRR exceeds the required return by about 1.53 percent. 
E)  Yes;The IRR is less than the required return by about 0.06 percent. 
A)  No;The IRR exceeds the required return by about 0.06 percent. 
B)  No;The IRR is less than the required return by about 1.53 percent. 
C)  Yes;The IRR exceeds the required return by about 0.06 percent. 
D)  Yes;The IRR exceeds the required return by about 1.53 percent. 
E)  Yes;The IRR is less than the required return by about 0.06 percent.

Question 16

An investment project provides cash flows of $1,190 per year for 10 years.If the initial cost is $8,000,what is the payback period?

Accepted Answer

A)  3.36 years 
B)  5.28 years 
C)  6.72 years 
D)  8.13 years 
E)  never 
A)  3.36 years 
B)  5.28 years 
C)  6.72 years 
D)  8.13 years 
E)  never

Question 17

The final decision on which one of two mutually exclusive projects to accept ultimately depends upon which one of the following?

Accepted Answer

A)  initial cost of each project 
B)  timing of the cash inflows 
C)  total cash inflows of each project 
D)  required rate of return 
E)  length of each project's life 
A)  initial cost of each project 
B)  timing of the cash inflows 
C)  total cash inflows of each project 
D)  required rate of return 
E)  length of each project's life

Question 18

-You are analyzing a project and have gathered the following data:  
Based on the profitability index of _____ for this project,you should _____ the project.

Accepted Answer

A)  0.93;accept 
B)  1.02;accept 
C)  1.10;accept 
D)  0.93;reject 
E)  1.10;reject 
A)  0.93;accept 
B)  1.02;accept 
C)  1.10;accept 
D)  0.93;reject 
E)  1.10;reject

Question 19

The length of time a firm must wait to recoup the money it has invested in a project is called the:

Accepted Answer

A)  internal return period. 
B)  payback period. 
C)  profitability period. 
D)  discounted cash period. 
E)  valuation period. 
A)  internal return period. 
B)  payback period. 
C)  profitability period. 
D)  discounted cash period. 
E)  valuation period.

Question 20

The length of time a firm must wait to recoup,in present value terms,the money it has in invested in a project is referred to as the:

Accepted Answer

A)  net present value period. 
B)  internal return period. 
C)  payback period. 
D)  discounted profitability period. 
E)  discounted payback period. 
A)  net present value period. 
B)  internal return period. 
C)  payback period. 
D)  discounted profitability period. 
E)  discounted payback period.

Exam 9: Net Present Value and Other Investment Criteria

What is the net present value of a project with the following cash flows if the required rate of return is 9 percent?

-Home Décor & More is considering a proposed project with the following cash flows.Should this project be accepted based on the combination approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 16 percent? Why or why not?

The internal rate of return is:

Explain how the internal rate of return (IRR)decision rule is applied to projects with financing type cash flows.

Blue Water Systems is analyzing a project with the following cash flows.Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 14 percent? Why or why not?

-A project will produce cash inflows of $2,800 a year for 4 years with a final cash inflow of $5,700 in year 5.The project's initial cost is $9,500.What is the net present value of this project if the required rate of return is 16 percent?

Consider the following two mutually exclusive projects: What is the crossover rate for these two projects?

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

The internal rate of return is defined as the:

-You are analyzing a project and have gathered the following data: Based on the net present value of _____,you should _____ the project.

-What is the profitability index for an investment with the following cash flows given a 14.5 percent required return?

You are considering a project with an initial cost of $7,500.What is the payback period for this project if the cash inflows are $1,100,$1,640,$3,800,and $4,500 a year over the next four years,respectively?

If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery.These projects are considered to be:

Tedder Mining has analyzed a proposed expansion project and determined that the internal rate of return is lower than the firm desires.Which one of the following changes to the project would be most expected to increase the project's internal rate of return?

-An investment has the following cash flows and a required return of 13 percent.Based on IRR,should this project be accepted? Why or why not?

An investment project provides cash flows of $1,190 per year for 10 years.If the initial cost is $8,000,what is the payback period?

The final decision on which one of two mutually exclusive projects to accept ultimately depends upon which one of the following?

-You are analyzing a project and have gathered the following data: Based on the profitability index of _____ for this project,you should _____ the project.

The length of time a firm must wait to recoup the money it has invested in a project is called the:

The length of time a firm must wait to recoup,in present value terms,the money it has in invested in a project is referred to as the:

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flowpart Two: Financial Statements and Long-Term Financial Planning

Working With Financial Statements

Long-Term Financial Planning and Growthpart Three: Valuation of Future Cash Flows

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuationpart Four: Capital Budgeting

Making Capital Investment Decisions

Project Analysis and Evaluationpart Five: Risk and Return

Some Lessons From Capital Market History

Return, Risk, and the Security Market Linepart Six: Cost of Capital and Long-Term Financial Policy

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policypart Seven: Short-Term Financial Planning and Management

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Managementpart Eight: Topics in Corporate Finance

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters

-You are analyzing a project and have gathered the following data: Based on the net present value of _,you should _ the project.

-You are analyzing a project and have gathered the following data: Based on the profitability index of _ for this project,you should _ the project.