Question 1

The possibility that more than one discount rate will make the NPV of an investment equal to zero is called the _____ problem.

Accepted Answer

A)  net present value profiling
B)  operational ambiguity
C)  mutually exclusive investment decision
D)  issues of scale
E)  multiple rates of return

Question 2

Ginny Trueblood is considering an investment which will cost her $120,000.The investment produces no cash flows for the first year.In the second year the cash inflow is $35,000.This inflow will increase to $55,000 and then $75,000 for the following two years before ceasing permanently.Ginny requires a 10% rate of return and has a required discounted payback period of three years.Ginny should _____ this project because the discounted payback period is ____.

Accepted Answer

A)  accept;2.03 years
B)  accept;2.97 years
C)  accept;3.97 years
D)  reject;3.03 years
E)  reject;3.97 years

Question 3

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

Accepted Answer

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 4

Accepting positive NPV projects benefits the stockholders because:

Accepted Answer

A)  it is the most easily understood valuation process.
B)  the present value of the expected cash flows are equal to the cost.
C)  the present value of the expected cash flows are greater than the cost.
D)  it is the most easily calculated.
E)  None of the above.

Question 5

The IRR rule is said to be a special case of the NPV rule.Explain why this is so and why it has some limitations NPV does not?

Accepted Answer

At some K,NPV = $0;by definition,when NP...

Question 6

A situation in which accepting one investment prevents the acceptance of another investment is called the:

Accepted Answer

A)  net present value profile.
B)  operational ambiguity decision.
C)  mutually exclusive investment decision.
D)  issues of scale problem.
E)  multiple choices of operations decision.

Question 7

Matt is analyzing two mutually exclusive projects of similar size and has prepared the following data.Both projects have 5 year lives. 
Matt has been asked for his best recommendation given this information.His recommendation should be to accept:

Accepted Answer

A)  project B because it has the shortest payback period.
B)  both projects as they both have positive net present values.
C)  project A and reject project B based on their net present values.
D)  project B and reject project A based on other criteria not mentioned in the problem.
E)  project B and reject project A based on both the payback period and the average accounting return.

Question 8

The internal rate of return may be defined as:

Accepted Answer

A)  the discount rate that makes the NPV equal to zero.
B)  the difference between the market rate of interest and the NPV.
C)  the market rate of interest less the risk-free rate.
D)  the project acceptance rate set by management.
E)  None of the above.

Question 9

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

Accepted Answer

The NPV and PI are basically the same ca...

Question 10

The payback period rule accepts all investment projects in which the payback period for the cash flows is:

Accepted Answer

A)  greater than one.
B)  greater than the cutoff point.
C)  less than the cutoff point.
D)  positive.
E)  None of the above.

Question 11

The primary reason that company projects with positive net present values are considered acceptable is that:

Accepted Answer

A)  they create value for the owners of the firm.
B)  the project's rate of return exceeds the rate of inflation.
C)  they return the initial cash outlay within three years or less.
D)  the required cash inflows exceed the actual cash inflows.
E)  the investment's cost exceeds the present value of the cash inflows.

Question 12

You are considering two independent projects both of which have been assigned a discount rate of 8%.Based on the profitability index,what is your recommendation concerning these projects?

Accepted Answer

A)  You should accept both projects since both of their PIs are positive.
B)  You should accept project A since it has the higher PI.
C)  You should accept both projects since both of their PIs are greater than 1.
D)  You should only accept project B since it has the largest PI and the PI exceeds 1.
E)  Neither project is acceptable.

Question 13

An investment cost $10,000 with expected cash flows of $3,000 for 5 years.The discount rate is 15.2382%.The NPV is ___ and the IRR is ___ for the project.

Accepted Answer

A)  $0;15.2382%
B)  $3.33;27.2242%
C)  $5,000;0%
D)  Can not answer without one or the other value as input.
E)  None of the above.

Question 14

Using internal rate of return,a conventional project should be accepted if the internal rate of return is:

Accepted Answer

A)  equal to the discount rate.
B)  greater than the discount rate.
C)  less than the discount rate.
D)  negative.
E)  positive.

Question 15

Based on the internal rate of return of _____ for this project,you should _____ the project.

Accepted Answer

A)  8.95%;accept
B)  10.75%;accept
C)  8.44%;reject
D)  9.67%;reject
E)  10.33%;reject

Question 16

A project has an initial cost of $8,600 and produces cash inflows of $3,200,$4,900,and $1,500 over the next three years,respectively.What is the discounted payback period if the required rate of return is 8%?

Accepted Answer

A)  2.05 years
B)  2.13 years
C)  2.33 years
D)  3.00 years
E)  never

Question 17

Given that the net present value (NPV) is generally considered to be the best method of analysis,why should you still use the other methods?

Accepted Answer

A)  The other methods help validate whether or not the results from the net present value analysis are reliable.
B)  You need to use the other methods since conventional practice dictates that you only accept projects after you have generated three accept indicators.
C)  You need to use other methods because the net present value method is unreliable when a project has unconventional cash flows.
D)  The internal rate of return must always indicate acceptance since this is the best method from a financial perspective.
E)  The discounted payback method must always be computed to determine if a project returns a positive cash flow since NPV does not measure this aspect of a project.

Question 18

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

Accepted Answer

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

Question 19

You are analyzing two mutually exclusive projects and have developed the following information.What is the incremental IRR?

Accepted Answer

A)  11.11%
B)  13.01%
C)  14.91%
D)  16.75%
E)  17.90%

Question 20

Based on the payback period of _____ for this project,you should _____ the project.

Accepted Answer

A)  1.87 years;accept
B)  2.87 years;accept
C)  2.87 years;reject
D)  3.13 years;reject
E)  3.87 years;reject

Exam 5: Net Present Value and Other Investment Rules

Based on the payback period of _ for this project,you should _ the project.

Correct Answer
verified

The IRR rule is said to be a special case of the NPV rule.Explain why this is so and why it has some limitations NPV does not?

Correct Answer
verified
At some K,NPV = $0;by definition,when NP...
View Answer

Accepting positive NPV projects benefits the stockholders because:

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Matt is analyzing two mutually exclusive projects of similar size and has prepared the following data.Both projects have 5 year lives. Matt has been asked for his best recommendation given this information.His recommendation should be to accept:

Correct Answer
verified

The primary reason that company projects with positive net present values are considered acceptable is that:

Correct Answer
verified

A project has an initial cost of $8,600 and produces cash inflows of $3,200,$4,900,and $1,500 over the next three years,respectively.What is the discounted payback period if the required rate of return is 8%?

Correct Answer
verified

Using internal rate of return,a conventional project should be accepted if the internal rate of return is:

Correct Answer
verified

Given that the net present value (NPV) is generally considered to be the best method of analysis,why should you still use the other methods?

Correct Answer
verified

Correct Answer
verified

The payback period rule accepts all investment projects in which the payback period for the cash flows is:

Correct Answer
verified

Based on the internal rate of return of _ for this project,you should _ the project.

Correct Answer
verified

You are analyzing two mutually exclusive projects and have developed the following information.What is the incremental IRR?

Correct Answer
verified

A situation in which accepting one investment prevents the acceptance of another investment is called the:

Correct Answer
verified

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

Correct Answer
verified
The NPV and PI are basically the same ca...
View Answer

You are considering two independent projects both of which have been assigned a discount rate of 8%.Based on the profitability index,what is your recommendation concerning these projects?

Correct Answer
verified

An investment cost $10,000 with expected cash flows of $3,000 for 5 years.The discount rate is 15.2382%.The NPV is _ and the IRR is _ for the project.

Correct Answer
verified

The possibility that more than one discount rate will make the NPV of an investment equal to zero is called the _____ problem.

Correct Answer
verified

The internal rate of return may be defined as:

Correct Answer
verified

Exam 5: Net Present Value and Other Investment Rules

Based on the payback period of _____ for this project,you should _____ the project.

Correct AnswerverifiedShow Answer

The IRR rule is said to be a special case of the NPV rule.Explain why this is so and why it has some limitations NPV does not?

Correct AnswerverifiedAt some K,NPV = $0;by definition,when NP...View AnswerShow Answer

Accepting positive NPV projects benefits the stockholders because:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Matt is analyzing two mutually exclusive projects of similar size and has prepared the following data.Both projects have 5 year lives. Matt has been asked for his best recommendation given this information.His recommendation should be to accept:

Correct AnswerverifiedShow Answer

The primary reason that company projects with positive net present values are considered acceptable is that:

Correct AnswerverifiedShow Answer

A project has an initial cost of $8,600 and produces cash inflows of $3,200,$4,900,and $1,500 over the next three years,respectively.What is the discounted payback period if the required rate of return is 8%?

Correct AnswerverifiedShow Answer

Using internal rate of return,a conventional project should be accepted if the internal rate of return is:

Correct AnswerverifiedShow Answer

Given that the net present value (NPV) is generally considered to be the best method of analysis,why should you still use the other methods?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The payback period rule accepts all investment projects in which the payback period for the cash flows is:

Correct AnswerverifiedShow Answer

Based on the internal rate of return of _____ for this project,you should _____ the project.

Correct AnswerverifiedShow Answer

You are analyzing two mutually exclusive projects and have developed the following information.What is the incremental IRR?

Correct AnswerverifiedShow Answer

A situation in which accepting one investment prevents the acceptance of another investment is called the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedThe NPV and PI are basically the same ca...View AnswerShow Answer

You are considering two independent projects both of which have been assigned a discount rate of 8%.Based on the profitability index,what is your recommendation concerning these projects?

Correct AnswerverifiedShow Answer

An investment cost $10,000 with expected cash flows of $3,000 for 5 years.The discount rate is 15.2382%.The NPV is ___ and the IRR is ___ for the project.

Correct AnswerverifiedShow Answer

The possibility that more than one discount rate will make the NPV of an investment equal to zero is called the _____ problem.

Correct AnswerverifiedShow Answer

The internal rate of return may be defined as:

Correct AnswerverifiedShow Answer

Based on the payback period of _ for this project,you should _ the project.

Correct Answer
verified

Correct Answer
verified
At some K,NPV = $0;by definition,when NP...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Based on the internal rate of return of _ for this project,you should _ the project.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The NPV and PI are basically the same ca...
View Answer

Correct Answer
verified

An investment cost $10,000 with expected cash flows of $3,000 for 5 years.The discount rate is 15.2382%.The NPV is _ and the IRR is _ for the project.

Correct Answer
verified

Correct Answer
verified

Correct Answer
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