Deck 7: Net Present Value and Other Investment Rules

Question 1

All else equal,the payback period for a project will decrease whenever the:

A)duration of a project is lengthened.
B)cash inflows are moved earlier in time.
C)assigned discount rate decreases.
D)required return for a project increases.
E)initial cost increases.

Answer 1

cash inflows are moved earlier in time.

Question 2

The present value of an investment's future cash flows divided by the initial cost of the investment is called the:

A)average accounting return.
B)internal rate of return.
C)profitability index.
D)profile period.
E)net present value.

Answer 2

profitability index.

Question 3

If the net present value of a project is positive (non-zero),then the project's:

A)PI will be less than 1.
B)internal rate of return will exceed its required rate of return.
C)costs exceed its benefits.
D)discounted payback period will exceed the life of the project.
E)payback period must equal the life of the project.

Answer 3

internal rate of return will exceed its required rate of return.

Question 4

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

A)AAR
B)IRR
C)NPV
D)PI
E)Discounted payback

Question 5

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

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

Question 6

Projects A and B are mutually exclusive,have positive net present values and required discounted payback periods that exceed the projected discounted payback periods.Which project(s),if either,should the firm accept?

A)Both A and B
B)Neither A nor B
C)A,but not B
D)B,but not A
E)Either A or B but not both A and B

Question 7

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

A)the discount rate increases.
B)each cash inflow is delayed by one year.
C)the initial cost of a project increases.
D)the rate of return decreases.
E)all cash inflows are moved to the last year of the project.

Question 8

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

A)application of a discount rate to each separate cash flow.
B)bias towards liquidity.
C)difficulty of use.
D)arbitrary cutoff point.
E)consideration of all relevant cash flows.

Question 9

Projects A and B require an initial investment of $48,000 and $98,000,respectively.The projects are mutually exclusive and both have positive net present values.Which of these methods is probably the best method to use to determine which project to accept?

A)Payback
B)Modified IRR
C)AAR
D)Incremental IRR
E)IRR

Question 10

The discount rate that makes the net present value of an investment exactly equal to zero is called the:

A)profitable rate of return.
B)internal rate of return.
C)average accounting return.
D)profitability index.
E)risk-free rate.

Question 11

An investment is acceptable if the profitability index (PI)of the investment is:

A)greater than one.
B)less than one.
C)greater than the internal rate of return (IRR).
D)less than the net present value (NPV).
E)greater than a pre-specified rate of return.

Question 12

The discounted payback period of a project will decrease whenever the:

A)initial cash outlay for the project is increased.
B)amount of each projected cash inflow is increased.
C)discount rate applied to the project is increased.
D)time period of the project is increased.
E)costs of the fixed assets utilized in the project increase.

Question 13

An investment is acceptable if its average accounting return (AAR):

A)exceeds the target AAR.
B)is less than the target AAR.
C)exceeds the firm's return on equity (ROE).
D)is less than the firm's return on assets (ROA).
E)is equal to zero.

Question 14

Which of these are disadvantages of the payback method?
I.May ignore some cash flows
II.Required time period is set arbitrarily
III.Easy to compute
IV.Ignores the time value of money

A)IV only
B)I and III only
C)II and IV only
D)II,III,and IV only
E)I,II,and IV only

Question 15

Which one of the following statements concerning net present value (NPV)is correct?

A)An investment should be accepted if,and only if,the NPV is exactly equal to zero.
B)An investment should be accepted only if the NPV is equal to the initial cash flow.
C)An investment should be accepted if the NPV is positive and rejected if it is negative.
D)An investment with greater cash inflows than cash outflows will always have a positive NPV.
E)Any project that has positive cash flows for every time period after the initial investment should be accepted.

Question 16

A proposed project has a positive net present value.If this project is accepted,then:

A)the firm made an incorrect accept/reject decision.
B)shareholder wealth will increase.
C)shareholder wealth will remain constant.
D)the value of the firm will decrease.
E)the value of the firm will remain constant.

Question 17

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

A)The project's cash inflows exceed its outflows by $210.
B)The project will return an accounting profit of $210.
C)The project's discounted cash flows are $210 less than its undiscounted cash flows.
D)The project will increase the firm's cash account by $210 when the project is started.
E)The project is earning $210 in addition to the project's required rate of return.

Question 18

Assume a project has normal cash flows.According to the accept/reject rules,the project should be accepted if the:

A)PI is less than 1.
B)AAR is less than the required AAR.
C)IRR exceeds the required return.
D)payback period is less than the life of the project.
E)discounted payback period is less than the life of the project.

Question 19

A firm should accept projects with positive net present values primarily because those projects will:

A)also have positive AARs.
B)return the firm's initial cash outlay within one year.
C)create value for the firm's current stockholders.
D)produce only positive cash flows after the initial investment period.
E)increase the current liquidity of the firm.

Question 20

Which one of the following statements is correct concerning the payback period?

A)An investment is acceptable if its calculated payback period is less than some pre-specified period of time.
B)An investment should be accepted if the payback is positive and rejected if it is negative.
C)An investment should be rejected if the payback is positive and accepted if it is negative.
D)An investment is acceptable if its calculated payback period is greater than some pre-specified period of time.
E)An investment should be accepted any time the payback period is less than the discounted payback period,given a positive discount rate.

Question 21

The payback method is a convenient and useful tool because:

A)it provides a quick estimate of how rapidly an initial investment will be recouped.
B)it considers all of a project's relevant cash flows.
C)it considers the time value of money.
D)the required payback period for all of a firm's projects must be identical.
E)it only considers the cash flows within the current period of 12 months.

Question 22

A project has a net present value of $1,200 and a project life of four years.Which one of these statements must be true?

A)The project's IRR is less than the required rate of return.
B)The project is expected to return $1,200 in Time 0 dollars over and above the discount rate.
C)The project would also have a positive net present value if Year 4 was omitted.
D)The project's cash inflows exceed its outflows by $1,200 over the four years.
E)The project is expected to return $1,200 in Year 4 dollars over and above the initial investment.

Question 23

Which two of the following methods of project analysis are most biased towards short-term projects?
I.Internal rate of return
II.Accounting rate of return
III.Payback
IV.Discounted payback

A)I and II only
B)III and IV only
C)II and III only
D)I and IV only
E)II and IV only

Question 24

If the discounted payback method is preferable to the payback method,then why is the payback method ever used?

A)The discounted payback requires an arbitrary cutoff point while payback does not.
B)Payback is easier to compute than discounted payback.
C)Payback considers all of a project's cash flows but discounted payback does not.
D)Payback requires the initial investment be recovered during a project's life while the required discounted payback period may be shorter.
E)Payback can be used with mutually exclusive projects but discounted payback cannot.

Question 25

The modified internal rate of return is designed primarily to analyze projects that:

A)are financing rather than investing projects.
B)are mutually exclusive.
C)alternate positive,negative,and positive cash flows.
D)have significantly different sizes.
E)have lives in excess of five years.

Question 26

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?

A)0
B)1
C)2
D)3
E)4

Question 27

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?

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

Question 28

The internal rate of return:

A)is more reliable as a decision making tool than net present value when considering mutually exclusive projects.
B)is the discount rate that makes the net present value of a project equal to one.
C)is easier to apply than net present value when cash flows are unconventional.
D)will provide the same accept/reject decision as NPV when cash flows are conventional and projects are independent.
E)is influenced by daily changes in the market rate of interest.

Question 29

What is the key reason why a positive NPV project should be accepted?

A)The project is expected to increase shareholder value.
B)The present value of the expected cash flows equal the project's cost.
C)The firm will earn a return equal to the NPV value at the end of the project.
D)The project will have a payback period equal to its life.
E)The project's PI will be less than 1,which also indicates acceptance.

Question 30

Project A has an initial cost of $628,000 and Project B has an initial cost of $894,000.Both projects have a positive NPV.Which one of these would be your best next step to determine which project to accept assuming the projects are mutually exclusive?

A)Compute the discounted payback for both projects and select the project with the shortest payback period
B)Compute the IRR for each project and select the project with the higher IRR value
C)Compute the AAR for both projects and accept the project with the higher AAR value
D)Compute the PI of both projects and select the project with the lower PI value
E)Compute the IRR on the differences obtained by subtracting Project A's cash flows from those of Project B

Question 31

No matter how many forms of investment analysis you perform:

A)the actual results from a project may vary significantly from the expected results.
B)the internal rate of return will always produce the most reliable results.
C)a project will never be accepted unless the payback period is met.
D)only the first three years of a project ever affect its final outcome.
E)the initial costs will generally vary considerably from the estimated costs.

Question 32

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

A)Building a warehouse and a retail outlet side by side on company property
B)Buying sufficient inventory to stock both the warehouse and the retail outlet
C)Using the company's sales force to sell items to both individuals and other retailers
D)Assigning an employee to work in the retail outlet rather than in the warehouse
E)Acquiring a computer program to track inventory throughout the warehouse and retail store

Question 33

Assume you are looking at a graph that relates the net present value of two mutually exclusive investment projects to various discount rates.Assume the projects have differing cash flows and finite lives.Which one of these statements accurately reflects this graph?

A)The lines representing the projects will be upward sloping.
B)If one project has equal cash flows for each year of its life,the line representing that project will be horizontal.
C)The lines representing the projects will be parallel over multiple discount rates.
D)The lines representing the projects must cross at a point where the NPV of each project is positive.
E)The project lines will reflect lower NPV values at higher discount rates.

Question 34

Which one of these statements is correct given a project with conventional cash flows?

A)The project will have multiple IRRs.
B)The discounted payback period will be equal to or less than the life of the project.
C)The project's AAR will exceed its IRR.
D)The NPV is positive at the required rate of return.
E)The PI may be greater than,equal to,or less than one.

Question 35

Two mutually exclusive projects produce the same positive NPV at a discount rate of 11.34 percent.Both projects have 4-year lives.Project A has larger cash flows than Project B in the first two years.Given this information,you know that:

A)it makes no difference which project you accept as long as the discount rate does not exceed 11.34 percent.
B)Project A should always be preferred.
C)one project will be preferred at rates less than 11.34 percent and the other will be preferred at higher rates.
D)Project B must require a smaller investment than Project A at Time 0.
E)Project B should only be accepted if the discount rate is 11.34 percent.

Question 36

Analysis using the profitability index:

A)frequently conflicts with the accept and reject decisions generated by the application of the net present value rule.
B)is useful as a decision tool when investment funds are limited.
C)cannot be used to aid capital structure decisions.
D)utilizes the same basic variables as those used in the average accounting return.
E)produces results which typically are difficult to comprehend or apply.

Question 37

What is the primary shortcoming of the average accounting rate of return from a financial perspective?

A)The lack of use in the business world
B)The lack of a clear-cut decision rule
C)The degree of the calculation difficulty
D)The degree of estimation involved with the initial cost
E)The use of net income rather than cash flows

Question 38

Two key weaknesses of the internal rate of return rule are the:

A)arbitrary determination of a discount rate and failure to consider initial expenditures.
B)failure to correctly analyze mutually exclusive projects and the multiple rate of return problem.
C)failure to consider all cash flows and the multiple rate of return problem.
D)failure to consider initial expenditures and failure to correctly analyze mutually exclusive projects.
E)failure to correctly analyze mutually exclusive projects and the lack of clear-cut decision rule.

Question 39

When two projects can share the same economic resource,the projects are generally considered to be:

A)mutually exclusive.
B)independent.
C)underfunded.
D)inferior.
E)financially equivalent.

Question 40

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?

A)The discount rate used in computing the net present value must have been less than 8.7 percent.
B)The discounted payback period will have to be less than 2.44 years.
C)The discount rate used to compute the profitability ratio was equal to the internal rate of return.
D)This project should be accepted based on the profitability ratio.
E)The required rate of return must be greater than 8.7 percent.

Question 41

Project Q has an initial cost of $211,415 and projected cash flows of $121,300 in Year 1 and $176,300 in Year 2.Project R has an initial cost of $415,000 and projected cash flows of $187,500 in Year 1 and $236,600 in Year 2.The discount rate is 8.5 percent and the projects are independent.Which project(s),if either,should be accepted based on its profitability index value?

A)Accept both Project Q and R
B)Reject both Project Q and R
C)Accept Project Q and reject Project R
D)Accept Project R and reject Project Q
E)Accept either Project R or Project Q,but not both

Question 42

A proposed project has an initial cost of $475,000 and cash flows of -$21,200,$367,500,and $287,000 for Years 1 to 3,respectively.Victoria,the boss,insists that only projects that can return at least $1.10 in today's dollars for every $1 invested can be accepted.She also insists on applying a discount rate of 12 percent to all cash flows.Based on these criteria,the project should be:

A)accepted the NPV is positive.
B)accepted because the PI exceeds 1.
C)accepted because IRR is less than 12 percent.
D)rejected because the PI is 1.01.
E)rejected because the IRR exceeds 12 percent.

Question 43

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?

A)1.88 years
B)2.07 years
C)2.13 years
D)2.46 years
E)3.13 years

Question 44

Rodriquez's Hot Rods is considering a new project with an initial cost of $26,410 and a discount rate of 8 percent.The project is expected to have one cash inflow of $42,500 in Year 2.What is the discounted payback period?

A).72 years
B)1.39 years
C).62 years
D)1.72 years
E)1.62 years

Question 45

Toy Town is considering a new toy that will cost $49,100 in startup costs.The toy is expected to produce cash flows of $47,500 in Year 1 and $18,600 in Year 2.The toy will be discontinued after the second year.The discount rate assigned to the toy is 14.9 percent.Should the toy be produced? What is the IRR?

A)Yes;26.65%
B)Yes;41.79%
C)Yes;38.03%
D)No;26.65%
E)No;41.79%

Question 46

Bloomfield Tires has assigned a discount rate of 14.4 percent to a new project that has an initial cost of $229,000 and cash flows of $74,300,$128,700,and $89,500 for Years 1 to 3,respectively.What is the net present value of this project?

A)$1,308.16
B)-$8,344.40
C)-$5,934.79
D)$5,127.10
E)-$4,899.03

Question 47

Baxter's Market is considering opening a new location with an initial cost of $428,700.This location is expected to generate cash flows of $132,400,$161,500,$187,800,and $201,000 in Years 1 to 4.What is the payback period?

A)1.86 years
B)2.72 years
C)1.31 years
D)2.54 years
E)2.31 years

Question 48

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?

A)Yes;because the IRR exceeds the required return
B)Yes;because the IRR is a positive rate of return
C)You cannot apply the IRR rule in this case because there are multiple IRRs.
D)No;because the IRR is a negative rate of return
E)No;because the IRR is less than the required return

Question 49

You are considering two independent projects both of which have been assigned a discount rate of 8 percent.Project A costs $13,100 and produces cash flows of $5,300 a year for three years.Project B costs $21,900 and produces cash flows of $12,000 a year for two years.Based on the profitability index,what is your recommendation concerning these projects?

A)You should accept both projects since both of their PIs are positive.
B)You should accept Project B because it has the lower PI.
C)You should reject both projects since both of their PIs are greater than 1.
D)You should accept project A because its PI exceeds 1.
E)You can accept either A or B,but not both.

Question 50

You are considering a project with an initial cost of $4,600.What is the payback period for this project if the cash inflows are $450,$970,$2,800,and $500 a year for Years 1 to 4,respectively?

A)1.03 years
B)2.36 years
C)2.89 years
D)3.76 years
E)3.81 years

Question 51

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?

A)8.67%
B)10.93%
C)8.77%
D)1.06%
E)2.335

Question 52

What is the net present value of a project that has an initial cash outflow of $12,670 and cash inflows of $2,400 a year for Years 1 and 2 and a final cash inflow in Year 6 of $15,400? The required return is 14.5 percent.

A)$-1,909.10
B)$-608.14
C)$23,430.90
D)$25,134.85
E)$5,671.02

Question 53

A new product has startup costs of $338,200 and projected cash flows of $102,000,$187,500,and $245,000 for Years 1 to 3,respectively.What is the profitability index given a 9 percent required return?

A).71
B).77
C)1.16
D)1.30
E)1.41

Question 54

A project has an initial cost of $38,300 and anticipated cash flows of $9,200,$18,700,$14,600 for Years 1 to 3,respectively.What is the profitability index value if the required return is 9.5 percent?

A).86
B).92
C).99
D)1.09
E)1.16

Question 55

A project will not produce any cash flows for two years.Starting in the third year,it will produce annual cash flows of $11,900 a year for two years.The project initially costs $43,600.In Year 6,the project will be closed and as a result should produce a final cash inflow of $50,500.What is the net present value of this project if the required rate of return is 8.7 percent?

A)$5,474.76
B)$4,802.57
C)$3,935.56
D)$7,465.95
E)$5,447.76

Question 56

Miller's is considering a 2-year expansion project that will require $410,000 up front.The project will produce cash flows of $358,000 and $98,000 for Years 1 and 2,respectively.Based on the profitability index (PI)rule,should the project be accepted if the discount rate is 12 percent? Why or why not?

A)Yes;because the PI is 1.03
B)Yes;because the PI is .97
C)Yes;because the PI is .94
D)No;because the PI is 1.03
E)No;because the PI is .97

Question 57

A project costs $22,900 to initiate.It is expected to provide cash flows of $15,900 in Year 1 and $9,900 in Year 2.In Year 3,it will cost the firm $5,500 to end the project.What is the modified IRR at a discount rate of 14 percent?

A)-6.79%
B)-6.67%
C)10.63%
D)11.08%
E)14.00%

Question 58

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?

A)11.86%
B)12.37%
C)11.08%
D)13.92%
E)12.15%

Question 59

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)Accepted;because the IRR of 5.28 percent is less than the discount rate
B)Accepted;because the IRR of 5.77 percent is less than the discount rate
C)Rejected: because the IRR of 5.28 percent is less than the discount rate
D)Rejected;because the IRR of 5.77 percent is less than the discount rate
E)Rejected;because the IRR of 6.01 percent is less than the discount rate

Question 60

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?

A)-$287.22
B)-$503.06
C)$6,200.00
D)$21,096.94
E)$42,696.94

Question 61

A project produces annual net income of $9,500,$12,500,and $15,500 over its 3-year life.The initial cost of the project is $210,000.This cost is depreciated straightline to a zero book value over three years.What is the average accounting rate of return if the required discount rate is 12.25 percent?

A)14.80%
B)14.32%
C)23.49%
D)11.90%
E)17.62%

Question 62

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?

A)2.13 years
B)2.34 years
C)2.78 years
D)2.91 years
E)Never

Question 63

Project I has an initial cash outflow of $18,300 and annual cash flows of $8,700 for Years 1 to 3.Project II has an initial cash outflow of $25,400 and annual cash flows of $10,500 for Years 1 to 3.These projects are mutually exclusive.The required rate of return is 11 percent.Based on the incremental NPV_{(II - I),} which project(s)should be accepted and why?

A)Project II;because the incremental NPV_{(II - I)} is negative
B)Project I;because both the incremental NPV_{(II - I)} and NPV_I are positive
C)Both Project I and II;because both project NPVs are positive
D)Project II;because it has the larger NPV
E)Project I;because the incremental NPV_{(II - I)} is negative and NPV_I is positive

Question 64

Project A has an initial cost of $16,400 and cash flows of $5,100,$6,800,and $6,900 for Years 1 to 3,respectively.Project B has an initial cost of $21,200 and cash flows of $8,300,$7,900,and $7,700 for Years 1 to 3,respectively.What is the incremental IRR?

A)2.89%
B)4.07%
C)5.91%
D)6.75%
E)7.90%

Question 65

A project has an initial cost of $32,000 and a 4-year life.The company uses straightline depreciation to a book value of zero over the life of the project.The projected net income from the project is $1,200,$2,200,$3,500,and $2,700 a year for Years 1 to 4,respectively.What is the average accounting return?

A)3.55%
B)14.13%
C)4.28%
D)7.11%
E)15.00%

Question 66

Explain the differences and similarities between net present value (NPV)and the profitability index (PI).

Question 67

A project has average net income of $4,160 a year over its 4-year life.The initial cost of the project is $65,000 which will be depreciated using straightline depreciation to a zero book value over the life of the project.The firm wants to earn a minimal average accounting return of 11.65 percent.Should the project be accepted or rejected? What is the AAR?

A)Accepted;10.24%.
B)Accepted;11.08%.
C)Accepted;12.80%.
D)Rejected;10.24%.
E)Rejected;12.80%.

Question 68

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?

A)7.77%
B)8.13%
C)8.26%
D)8.67%
E)8.79%

Question 69

Clinton is considering a project that costs $3,200 will produce cash inflows of $980 a year for 4 years.The project has a required rate of return of 8.75 percent.What is the discounted payback period?

A)3.01 years
B)3.18 years
C)3.82 years
D)4.18 years
E)Never

Question 70

A project is expected to have annual cash flows of $22,400,$13,600 and -$4,200 for Years 1 to 3,respectively.The initial cash outlay is $27,500 and the discount rate is 12 percent.What is the modified IRR?

A)13.12%
B)13.22%
C)2.73%
D)8.67%
E)9.75%

Question 71

The Depot is considering a project with annual sales of $325,000 for four years.The profit margin is 4.65 percent.The initial cost for equipment will be $330,000.The equipment will be depreciated by $55,000 each year.The required average accounting rate of return is 11.4 percent.Should this project be accepted or rejected? What is the AAR?

A)Rejected;6.52%
B)Rejected;6.87%
C)Rejected;7.85%
D)Accepted;6.87%
E)Accepted;7.85%

Question 72

Leo is considering adding a deli to his general store.The remodeling expenses and shelving costs are estimated at $2,500.Deli sales are expected to produce net cash inflows of $1,300,$1,600,$1,700,and $1,750 for Years 1 to 4,respectively.Leo has a firm 3-year payback requirement.Should he add the deli?

A)Yes;because the payback period is 1.75 years
B)Yes;because the payback period is 2.25 years
C)Yes;because the payback period is 1.90 years
D)No;because the payback period is 1.75 years
E)No;because the payback period is 2.25 years

Question 73

A project has an initial cash inflow of $95,500 and cash flows of -$48,700 in Year 1 and -$57,200 in Year 2.The discount rate is 9 percent.Should this project be accepted or rejected based on IRR? Why?

A)Accepted: because the IRR of 6.98 percent is less than the discount rate
B)Accepted: because the IRR of 8.21 percent is less than the discount rate
C)Accepted: because the IRR of 8.78 percent is less than the discount rate
D)Rejected: because the IRR of 8.21 percent is less than the discount rate
E)Rejected: because the IRR of 6.98 percent is less than the discount rate

Question 74

Project A has an initial cost of $22,400 and cash flows of $7,100,$8,800,and $1,900 for Years 1 to 3,respectively.Project B has an initial cost of $37,200 and cash flows of $18,300,$17,900,and $2,700 for Years 1 to 3,respectively.What is the incremental IRR?

A)15.67%
B)13.54%
C)15.91%
D)23.38%
E)27.31%

Question 75

A project has an initial cost of $2,600.The cash inflows are $300,$500,$900,and $700 for Years 1 to 4,respectively.What is the payback period?

A)3.29 years
B)3.47 years
C)4.02 years
D)4.29 years
E)Never

Question 76

A project has an initial cash inflow of $36,400 and a cash outflow of $42,900 in Year 1.The discount rate is 20 percent.Should this project be accepted or rejected based on IRR? Why?

A)Accepted: because the IRR of 17.86 percent is less than the discount rate
B)Accepted: because the IRR of 15.15 percent is less than the discount rate
C)Accepted: because the IRR of 11.23 percent is less than the discount rate
D)Rejected: because the IRR of 17.86 percent is less than the discount rate
E)Rejected: because the IRR of 15.15 percent is less than the discount rate

Question 77

Nadine always makes the final accept/reject decision for proposed projects for ARK International.Her final decision is always based on NPV.Why then does she insist that any proposed project that comes to her desk include an analysis of the project's NPV,IRR,PI,payback,and discounted payback?

Question 78

Webster's wants to introduce a new product that has a startup cost of $15,000.The product has a 2-year life and will provide cash flows of $12,700 in Year 1 and $6,300 in Year 2.The required rate of return is 10 percent.Should the product be introduced? Why or why not?

A)Yes;The PI is 1.04.
B)No;The PI is .90.
C)Yes;The IRR is 19.74 percent.
D)Yes;The NPV is $851.24.
E)No;The IRR is 8.78 percent.

Question 79

The Walk-Up Window is considering two mutually exclusive projects.Project A has an initial cost of $49,230 and annual cash flows of $31,200 for three years.Project B has an initial cost of $21,400 and annual cash flows of $21,400 for two years.What is the crossover rate?

A)26.18%
B)29.39%
C)15.44%
D)-20.49%
E)15.86%

Question 80

Janice is considering an investment costing $102,500 with cash flows of $9,800 in Year 2,$48,700 in Year 3,and $82,900 in Year 4.The discount rate is 9 percent and the required discounted payback period is 2.5 years.Should this project be accepted or rejected? What is the discounted payback period?

A)Accepted;2.82 years
B)Accepted;3.96 years
C)Accepted;3.09 years
D)Rejected;2.82 years
E)Rejected;3.96 years