Exam 9: Net Present Value and Other Investment Criteria

-You are considering the following two mutually exclusive projects.Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project.Neither project has any salvage value. Should you accept or reject these projects based on the profitability index?

-You would like to invest in the following project. Sis,your boss,insists that only projects returning at least $1.06 in today's dollars for every $1 invested can be accepted.She also insists on applying a 14 percent discount rate to all cash flows.Based on these criteria,you should:

-A project that provides annual cash flows of $12,600 for 12 years costs $65,000 today.At what rate would you be indifferent between accepting the project and rejecting it?

-Hungry Hoagie's has identified the following two mutually exclusive projects: At what rate would you be indifferent between these two projects?

An investment project costs $21,500 and has annual cash flows of $6,500 for 6 years.If the discount rate is 15 percent,what is the discounted payback period?

Which one of the following is a project acceptance indicator given an independent project with investing type cash flows?

-You are considering an investment with the following cash flows.If the required rate of return for this investment is 15.5 percent,should you accept the investment based solely on the internal rate of return rule? Why or why not?

Which one of the following increases the net present value of a project?

You are considering the following two mutually exclusive projects.Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project.Neither project has any salvage value. Should you accept or reject these projects based on payback analysis?

Kristi wants to start training her most junior assistant,Amy,in the art of project analysis.Amy has just started college and has no experience or background in business finance.To get her started,Kristi is going to assign the responsibility for all projects that have initial costs less than $1,000 to Amy to analyze.Which method is Kristi most apt to ask Amy to use in making her initial decisions?

Applying the discounted payback decision rule to all projects may cause:

-Alicia is considering adding toys to her gift shop.She estimates that the cost of inventory will be $7,500.The remodeling expenses and shelving costs are estimated at $1,800.Toy sales are expected to produce net cash inflows of $2,300,$2,900,$3,200,and $3,400 over the next four years,respectively.Should Alicia add toys to her store if she assigns a three-year payback period to this project? Why or why not?