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

Question 1

Which of these describe groups or pairs of projects where you can accept one but not all?

A) Dependent
B) Independent
C) Mutually exclusive
D) Mutually dependent

Answer 1

Mutually exclusive

Question 2

Neither payback period nor discounted payback period techniques for evaluating capital projects account for

A) time value of money.
B) market rates of return.
C) cash flows that occur after payback.
D) cash flows that occur during payback.

Answer 2

cash flows that occur after payback.

Question 3

When choosing a capital budgeting technique(s) to use, which of the following sub-choices is affected?

A) the statistical format chosen
B) the benchmark used to compare with
C) computations using or not using time value of money
D) all of the above

Answer 3

all of the above

Question 4

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?

A) Payback
B) Discounted payback
C) Net present value
D) Profitability index

Question 5

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?

A) Internal rate of return (IRR)
B) Modified internal rate of return (MIRR)
C) Profitability index (PI)
D) Net present value (NPV)

Question 6

When choosing between two mutually exclusive projects using the payback period method for evaluating capital projects, one would choose

A) either project if they both are more than managers' maximum payback period.
B) neither project if they both are less than managers' maximum payback period.
C) the project that pays back the soonest.
D) the project that pays back the soonest if it is equal to or less than managers' maximum payback period.

Question 7

The net present value decision technique uses a statistic denominated in

A) years.
B) currency.
C) a percentage.
D) time lines.

Question 8

Which of the following statements regarding discounted payback (DPB) is/are not true?

A) It ignores any cash flows that accrue after the project reaches its respective payback benchmark.
B) Is a capital budgeting method that generates decision rules and associated metrics that choose projects based on how quickly they return their initial investment plus interest.
C) both a and b are not true.
D) none of the above.

Question 9

Which of these is a capital budgeting technique that generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flows?

A) Discounted payback
B) Net present value
C) Internal rate of return
D) Profitability index

Question 10

________ is a decision making process that includes the cost of capital calculation?

A) Interest-rate cognizant
B) Net present value
C) Internal rate of return
D) modified internal rate of return

Question 11

Which of the following is a technique for evaluating capital projects that is particularly useful when firms face time constraints in repaying investors?

A) Payback
B) Internal rate of return
C) Net present value
D) Profitability index

Question 12

Which capital budgeting technique step in the decision process is not used to evaluate a group of independent projects?

A) compute the statistic
B) have a run off between the mutually exclusive projects choosing the one with the best statistic
C) compare the computed statistic with the benchmark to decide to accept or reject the project.
D) all of the above are used

Question 13

The benchmark for the profitability index (PI) is the

A) cost of capital.
B) managers' maximum number of years.
C) zero or anything larger than zero.
D) zero or anything less than zero.

Question 14

The net present value decision technique may not be the only pertinent unit of measure if the firm is facing

A) time or resource constraints.
B) a labor union.
C) the election of a new board of directors.
D) a major investment.

Question 15

Which of these are sets of cash flows where all the initial cash flows are negative and all the subsequent ones are either zero or positive?

A) Expected cash flows
B) Time line cash flows
C) Non-normal cash flows
D) Normal cash flows

Question 16

Which of the following statements regarding payback (PB) is/are true?

A) The statistic requires keeping a running subtotal of the cumulative sum of the cash flows up to the point that this sum exactly offsets the initial investment.
B) Is a capital budgeting technique that generates decision rules and associated metrics for choosing projects based on how quickly they return their initial investment.
C) both a and b are true
D) none of the above

Question 17

Of the capital budgeting techniques discussed, which works equally well with normal and non-normal cash flows and with independent and mutually exclusive projects?

A) Payback period
B) Discounted payback period
C) Modified internal rate of return
D) Net present value

Question 18

All capital budgeting techniques

A) render the same investment decision.
B) use the same measurement units.
C) include all crucial information.
D) exclude some crucial information.

Question 19

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

A) The investment size and cash inflows that occur after the rather arbitrary testing period
B) The investment size and the cash inflows that occur before the testing period
C) The investment size and the cash outflows that occur before the testing period
D) The investment size and the cash inflows that occur during the testing period

Question 20

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?

A) Payback
B) Internal rate of return
C) Net present value
D) Profitability index

Question 21

Compute the MIRR for Project Y and accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | l | l |}\hline\text {Time: }&0&1&2&3&4&5\\\hline\text {Cash flow:}&-5,000&1,000&1,000&0&2,000&2,000\\\hline\end{array}\end{array}$$

A) 7.62 percent, accept
B) 7.62 percent, reject
C) 47.09 percent, accept
D) 47.09 percent, reject

Question 22

Compute the MIRR statistic for Project X and note 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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | l | l |}\hline\text {Time: }&0&1&2&3&4&5\\\hline\text {Cash flow:}&-175&75&0&100&75&50\\\hline\end{array}\end{array}$$

A) 13.26 percent, accept
B) 13.89 percent, accept
C) 13.26 percent, reject
D) 15.73 percent, accept

Question 23

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.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - 100,000 & 30,000 & 45,000 & 55,000 & 30,000 & 10,000 \\\hline\end{array}$$
Use the IRR decision rule to evaluate this project; should it be accepted or rejected?

A) ?4.95 percent, reject
B) 4.95 percent, accept
C) ?23.18 percent, reject
D) 23.18 percent, accept

Question 24

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 10 percent.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | l | l |}\hline\text {Time: }&0&1&2&3&4&5\\\hline\text {Cash flow:}&-75&-75&0&100&75&50\\\hline\end{array}\end{array}$$

A) $12.93
B) $14.22
C) $62.07
D) $136.90

Question 25

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

A) internal rate of return
B) net present value
C) modified internal rate of return
D) all of these choices are correct

Question 26

Compute the NPV for Project X with the cash flows shown as follows if the appropriate cost of capital is 9 percent.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | l | l |}\hline\text {Time: }&0&1&2&3&4&5\\\hline\text {Cash flow:}&-1,000&-75&100&100&0&2,000\\\hline\end{array}\end{array}$$

A) ?$639.96
B) $360.04
C) $392.44
D) $486.29

Question 27

Compute the IRR statistic for Project X and note 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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | l | l |}\hline\text {Time: }&0&1&2&3&4&5\\\hline\text {Cash flow:}&-75&-75&0&100&75&50\\\hline\end{array}\end{array}$$

A) 10 percent, accept
B) 10 percent, reject
C) 13.26 percent, accept
D) 13.26 percent, reject

Question 28

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | l | l |}\hline\text {Time: }&0&1&2&3&4&5\\\hline\text {Cash flow:}&-100&75&100&300&75&200\\\hline\end{array}\end{array}$$

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

Question 29

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.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - 100,000 & 30,000 & 45,000 & 55,000 & 30,000 & 10,000 \\\hline\end{array}$$
Use the discounted payback decision rule to evaluate this project; should it be accepted or rejected?

A) 1.23 years, accept
B) 2.45 years, accept
C) 2.77 years, accept
D) 5.36 years, reject

Question 30

Compute the PI statistic for Project X and note 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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | l | l |}\hline\text {Time: }&0&1&2&3&4&5\\\hline\text {Cash flow:}&-250&75&0&100&75&50\\\hline\end{array}\end{array}$$

A) ?0.0977 percent, reject
B) ?9.77 percent, reject
C) ?24.41 percent, reject
D) 24.41 percent, accept

Question 31

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 9 percent and the maximum allowable payback is four years.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | l | l |}\hline\text {Time: }&0&1&2&3&4&5\\\hline\text {Cash flow:}&-1,000&-75&100&100&0&2,000\\\hline\end{array}\end{array}$$

A) 3.4375 years, accept
B) 3.78 years, reject
C) 4.4375 years, reject
D) 4.78 years, accept

Question 32

Compute the IRR for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 9 percent.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | l | l |}\hline\text {Time: }&0&1&2&3&4&5\\\hline\text {Cash flow:}&-1,000&-75&100&100&0&2,000\\\hline\end{array}\end{array}$$

A) 9 percent, accept
B) 9 percent, reject
C) 16.61 percent, accept
D) 16.61 percent, reject

Question 33

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.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - 100,000 & 30,000 & 45,000 & 55,000 & 30,000 & 10,000 \\\hline\end{array}$$
Use the payback decision rule to evaluate this project; should it be accepted or rejected?

A) 2.45 years, accept
B) 2.83 years, accept
C) 3.45 years, accept
D) 3.83 years, reject

Question 34

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | l | l |}\hline\text {Time: }&0&1&2&3&4&5\\\hline\text {Cash flow:}&-75&-75&0&100&75&50\\\hline\end{array}\end{array}$$

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

Question 35

Compute the discounted 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 12 percent and the maximum allowable discounted payback is three years.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | l | l |}\hline\text {Time: }&0&1&2&3&4&5\\\hline\text {Cash flow:}&-5,000&500&2,000&3,000&1,500&500\\\hline\end{array}\end{array}$$

A) 3.45 years, reject
B) 3.86 years, reject
C) 3.45 years, accept
D) 3.86 years, accept

Question 36

Which of the following is a capital budgeting technique that converts a project's cash flows using a more consistent reinvestment rate prior to applying the internal rate of return, IRR, decision rule?

A) Discounted payback
B) Net present value
C) Modified internal rate of return
D) Profitability index

Question 37

Compute the discounted 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 discounted payback is three years.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | l | l |}\hline\text {Time: }&0&1&2&3&4&5\\\hline\text {Cash flow:}&-1,000&500&480&400&300&150\\\hline\end{array}\end{array}$$

A) 2.49 years, accept
B) 2.98 years, accept
C) 3.49 years, reject
D) 4.98 years, reject

Question 38

Compute the PI statistic for Project X and note 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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | l | l |}\hline\text {Time: }&0&1&2&3&4&5\\\hline\text {Cash flow:}&-75&-75&0&100&75&50\\\hline\end{array}\end{array}$$

A) 10 percent, reject
B) 14.22 percent, accept
C) 13.26 percent, accept
D) 18.96 percent, accept

Question 39

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) Discounted payback
B) Net present value
C) Internal rate of return
D) Profitability index

Question 40

________ is a decision rule and associated methodology for converting the net present value statistic into a rate-based metric.

A) Profitability index
B) payback method
C) Internal rate of return
D) modified internal rate of return

Question 41

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-1,000&300&400&700\\\hline\text {Project b Cash flow:}&-500&200&400&300\\\hline\end{array}\end{array}$$
Use the PI decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 42

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.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - 100,000 & 30,000 & 45,000 & 55,000 & 30,000 & 10,000 \\\hline\end{array}$$
Use the NPV decision rule to evaluate this project; should it be accepted or rejected?

A) $35,995.86, reject
B) $38,875.53, accept
C) $138,875.53, accept
D) $238,875.53, accept

Question 43

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.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - 125,000 & 65,000 & 78,000 & 105,000 & 105,000 & 25,000 \\\hline\end{array}$$
Use the MIRR decision rule to evaluate this project; should it be accepted or rejected?

A) 12.00 percent, reject
B) 31.21 percent, accept
C) 54.22 percent, accept
D) 80.67 percent, accept

Question 44

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-20,000&10,000&30,000&1,000\\\hline\text {Project b Cash flow:}&-30,000&10,000&20,000&50,000\\\hline\end{array}\end{array}$$
Use the IRR decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 45

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-1,000&300&400&700\\\hline\text {Project b Cash flow:}&-500&200&400&300\\\hline\end{array}\end{array}$$
Use the IRR decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 46

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.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - 125,000 & 65,000 & 78,000 & 105,000 & 105,000 & 25,000 \\\hline\end{array}$$
Use the PI decision rule to evaluate this project; should it be accepted or rejected?

A) ?1.21 percent, reject
B) 1.08 percent, accept
C) 1.21 percent, accept
D) 121 percent, accept

Question 47

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.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - 100,000 & 30,000 & 45,000 & 55,000 & 30,000 & 10,000 \\\hline\end{array}$$
Use the PI decision rule to evaluate this project; should it be accepted or rejected?

A) ?0.39 percent, reject
B) 0.39 percent, accept
C) ?38.88 percent, reject
D) 38.88 percent, accept

Question 48

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-20,000&10,000&30,000&1,000\\\hline\text {Project b Cash flow:}&-30,000&10,000&20,000&50,000\\\hline\end{array}\end{array}$$
Use the discounted payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 49

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-1,000&300&400&700\\\hline\text {Project b Cash flow:}&-500&200&400&300\\\hline\end{array}\end{array}$$
Use the NPV decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 50

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-1,000&300&400&700\\\hline\text {Project b Cash flow:}&-500&200&400&300\\\hline\end{array}\end{array}$$
Use the MIRR decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 51

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-20,000&10,000&30,000&1,000\\\hline\text {Project b Cash flow:}&-30,000&10,000&20,000&50,000\\\hline\end{array}\end{array}$$
Use the MIRR decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 52

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.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - 100,000 & 30,000 & 45,000 & 55,000 & 30,000 & 10,000 \\\hline\end{array}$$
Use the MIRR decision rule to evaluate this project; should it be accepted or rejected?

A) ?10.60 percent, reject
B) 10.60 percent, accept
C) ?15.33 percent, reject
D) 15.33 percent, accept

Question 53

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-20,000&10,000&30,000&1,000\\\hline\text {Project b Cash flow:}&-30,000&10,000&20,000&50,000\\\hline\end{array}\end{array}$$
Use the payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 54

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.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - 125,000 & 65,000 & 78,000 & 105,000 & 105,000 & 25,000 \\\hline\end{array}$$
Use the NPV decision rule to evaluate this project; should it be accepted or rejected?

A) $9,704.31, reject
B) $84,140.71, accept
C) $134,704.31, accept
D) $150,868.83, accept

Question 55

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-1,000&300&400&700\\\hline\text {Project b Cash flow:}&-500&200&400&300\\\hline\end{array}\end{array}$$
Use the discounted payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 56

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-20,000&10,000&30,000&1,000\\\hline\text {Project b Cash flow:}&-30,000&10,000&20,000&50,000\\\hline\end{array}\end{array}$$
Use the PI decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 57

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.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - 125,000 & 65,000 & 78,000 & 105,000 & 105,000 & 25,000 \\\hline\end{array}$$
Use the payback decision rule to evaluate this project; should it be accepted or rejected?

A) 0.23 years, accept
B) 1.77 years, accept
C) 2 years, accept
D) 4.33 years, reject

Question 58

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-20,000&10,000&30,000&1,000\\\hline\text {Project b Cash flow:}&-30,000&10,000&20,000&50,000\\\hline\end{array}\end{array}$$
Use the NPV decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 59

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-1,000&300&400&700\\\hline\text {Project b Cash flow:}&-500&200&400&300\\\hline\end{array}\end{array}$$
Use the payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 60

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.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - 125,000 & 65,000 & 78,000 & 105,000 & 105,000 & 25,000 \\\hline\end{array}$$
Use the discounted payback decision rule to evaluate this project; should it be accepted or rejected?

A) 1.77 years, reject
B) 1.94 years, accept
C) 2.06 years, accept
D) 3.00 years, reject

Question 61

Compute the NPV statistic for Project Y given the following cash flows if the appropriate cost of capital is 10 percent.
Project Y
$$\begin{array} { l c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 \\\text { Cash Flow } & - \$ 8,000 & \$ 3,350 & \$ 4,180 & \$ 1,520 & \$ 2,000\end{array}$$

A) $894.37
B) $993.97
C) $964.72
D) $1,008.03

Question 62

Compute the MIRR statistic for Project I and note whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 15 percent.
Project I
$$\begin{array} { l l l l c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\text { Cash Flow } & - \$ 1,000 & \$ 400 & \$ 300 & \$ 200 & \$ 300 & \$ 50\end{array}$$

A) The project's MIRR is 10.29 percent and the project should be rejected.
B) The project's MIRR is 12.67 percent and the project should be rejected.
C) The project's MIRR is 17.17 percent and the project should be accepted.
D) The project's MIRR is 18.19 percent and the project should be accepted.

Question 63

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?
$$\begin{array} { l c c c c c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\text { Cash Flow } & - \$ 5,000 & \$ 1,200 & \$ 1,400 & \$ 1,600 & \$ 1,600 & \$ 1,100 & \$ 2,000\end{array}$$

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 64

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-5,000&1,000&3,000&5,000\\\hline\text {Project b Cash flow:}&-10,000&5,000&5,000&5,000\\\hline\end{array}\end{array}$$
Use the MIRR decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 65

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-5,000&1,000&3,000&5,000\\\hline\text {Project b Cash flow:}&-10,000&5,000&5,000&5,000\\\hline\end{array}\end{array}$$
Use the NPV decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 66

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?
$$\begin{array} { l c c c c c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\text { Cash Flow } & - \$ 5,000 & \$ 1,200 & \$ 1,400 & \$ 1,600 & \$ 1,600 & \$ 1,100 & \$ 2,000\end{array}$$

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 67

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?
$$\begin{array} { l c c c c c c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\text { Cash Flow } & - \$ 5,000 & \$ 1,300 & \$ 1,400 & \$ 1,600 & \$ 1,600 & \$ 1,100 & \$ 2,000\end{array}$$

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 68

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
$$\begin{array} { l l l c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\text { Cash Flow } & - \$ 1,000 & \$ 300 & \$ 1,480 & - \$ 500 & \$ 300 & - \$ 100\end{array}$$

A) The project's MIRR is 14.77 percent and the project should be accepted.
B) The project's MIRR is 9.29 percent and the project should be rejected.
C) The project's MIRR is 13.76 percent and the project should be accepted.
D) The project's MIRR is 15.31 percent and the project should be accepted.

Question 69

How many possible IRRs could you find for the following set of cash flows?
$$\begin{array} { l c c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 \\\text { Cash Flow } & - \$ 10,000 & \$ 5,350 & \$ 4,180 & \$ 1,520 & \$ 2,000\end{array}$$

A) 1
B) 2
C) 3
D) Unable to determine unless we have the cost of capital.

Question 70

How many possible IRRs could you find for the following set of cash flows?
$$\begin{array} { c c c c c c c } \text { Timne } & 0 & 1 & 2 & 3 & 4 \\\text { Cash Flow } & - \$ 201,000 & - \$ 37,350 & \$ 460,180 & \$ 217,020 & - \$ 5,000\end{array}$$

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

Question 71

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 PI decision to evaluate this project; should it be accepted or rejected?
$$\begin{array} { l c c c c c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\text { Cash Flow } & - \$ 5,000 & \$ 1,200 & \$ 1,400 & \$ 1,600 & \$ 1,600 & \$ 1,100 & \$ 2,000\end{array}$$

A) PI = 6.94 percent, reject the project
B) PI = 7.52 percent, reject the project
C) PI = 23.61 percent, accept the project
D) PI = 35.33 percent, accept the project

Question 72

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
$$\begin{array} { l l l l c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\text { Cash Flow } & - \$ 1,000 & \$ 250 & \$ 180 & \$ 420 & \$ 300 & \$ 100\end{array}$$

A) The project's PI is ?8.70 percent and the project should be rejected.
B) The project's PI is ?11.70 percent and the project should be rejected.
C) The project's PI is 3.70 percent and the project should be accepted.
D) The project's PI is 5.70 percent and the project should be accepted.

Question 73

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 MIRR decision to evaluate this project; should it be accepted or rejected?
$$\begin{array} { l c c c c c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\text { Cash Flow } & - \$ 5,000 & \$ 1,200 & \$ 1,400 & \$ 1,600 & \$ 1,600 & \$ 1,100 & \$ 2,000\end{array}$$

A) MIRR = 13.59 percent, accept the project
B) MIRR = 7.96 percent, reject the project
C) MIRR = 7.19 percent, reject the project
D) MIRR = 12.58 percent, accept the project

Question 74

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
$$\begin{array} { l l l l c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\text { Cash Flow } & - \$ 1,000 & \$ 350 & \$ 380 & \$ 420 & \$ 300 & \$ 100\end{array}$$

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 75

Compute the NPV statistic for Project U given the following cash flows if the appropriate cost of capital is 9 percent.
Project U
$$\begin{array} { l l l l c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\text { Cash Flow } & - \$ 1,000 & \$ 350 & \$ 1,480 & - \$ 520 & \$ 400 & - \$ 100\end{array}$$

A) $201.69
B) $273.82
C) $383.63
D) $397.21

Question 76

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-5,000&1,000&3,000&5,000\\\hline\text {Project b Cash flow:}&-10,000&5,000&5,000&5,000\\\hline\end{array}\end{array}$$
Use the PI decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 77

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-5,000&1,000&3,000&5,000\\\hline\text {Project b Cash flow:}&-10,000&5,000&5,000&5,000\\\hline\end{array}\end{array}$$
Use the payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 78

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-5,000&1,000&3,000&5,000\\\hline\text {Project b Cash flow:}&-10,000&5,000&5,000&5,000\\\hline\end{array}\end{array}$$
Use the IRR decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B

Question 79

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?
$$\begin{array} { l c c c c c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\text { Cash Flow } & - \$ 5,000 & \$ 1,200 & \$ 1,400 & \$ 1,600 & \$ 1,600 & \$ 1,100 & \$ 2,000\end{array}$$

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 80

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.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-5,000&1,000&3,000&5,000\\\hline\text {Project b Cash flow:}&-10,000&5,000&5,000&5,000\\\hline\end{array}\end{array}$$
Use the discounted payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A) Accept both A and B
B) Accept neither A nor B
C) Accept A, reject B
D) Reject A, accept B