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-Sheakley Industries is considering expanding its current line of business and has developed the following expected cash flows for the project.Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 13.4 percent? Why or why not? A) Yes;The MIRR is 6.50 percent. B) No;The MIRR is 8.67 percent. C) Yes;The MIRR is 8.23 percent. D) No;The MIRR is 6.50 percent. E) No;The MIRR is 7.59 percent. -Sheakley Industries is considering expanding its current line of business and has developed the following expected cash flows for the project.Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 13.4 percent? Why or why not? -Sheakley Industries is considering expanding its current line of business and has developed the following expected cash flows for the project.Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 13.4 percent? Why or why not? A) Yes;The MIRR is 6.50 percent. B) No;The MIRR is 8.67 percent. C) Yes;The MIRR is 8.23 percent. D) No;The MIRR is 6.50 percent. E) No;The MIRR is 7.59 percent.


A) Yes;The MIRR is 6.50 percent.
B) No;The MIRR is 8.67 percent.
C) Yes;The MIRR is 8.23 percent.
D) No;The MIRR is 6.50 percent.
E) No;The MIRR is 7.59 percent.

Correct Answer

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The Taxi Co.is evaluating a project with the following cash flows: The Taxi Co.is evaluating a project with the following cash flows: The company uses an 8 percent interest rate on all of its projects.What is the MIRR using the discounted approach? A) 13.25 percent B) 14.08 percent C) 15.40 percent D) 16.13 percent E) 19.23 percent The company uses an 8 percent interest rate on all of its projects.What is the MIRR using the discounted approach?


A) 13.25 percent
B) 14.08 percent
C) 15.40 percent
D) 16.13 percent
E) 19.23 percent

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-Colin is analyzing a project and has gathered the following data.Based on this data,what is the average accounting rate of return? The project's assets will be depreciated using straight-line depreciation to a zero book value over the life of the project. A) 6.94 percent B) 13.88 percent C) 15.66 percent D) 27.75 percent E) 31.31 percent -Colin is analyzing a project and has gathered the following data.Based on this data,what is the average accounting rate of return? The project's assets will be depreciated using straight-line depreciation to a zero book value over the life of the project. -Colin is analyzing a project and has gathered the following data.Based on this data,what is the average accounting rate of return? The project's assets will be depreciated using straight-line depreciation to a zero book value over the life of the project. A) 6.94 percent B) 13.88 percent C) 15.66 percent D) 27.75 percent E) 31.31 percent


A) 6.94 percent
B) 13.88 percent
C) 15.66 percent
D) 27.75 percent
E) 31.31 percent

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Roger's Meat Market is considering two independent projects.The profitability index decision rule indicates that both projects should be accepted.This result most likely does which one of the following?


A) conflicts with the results of the net present value decision rule
B) assumes the firm has sufficient funds to undertake both projects
C) agrees with the decision that would also apply if the projects were mutually exclusive
D) bases the accept/reject decision on the same variables as the average accounting return
E) fails to provide useful information as the firm must reject at least one of the projects

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Which two methods of project analysis are the most biased towards short-term projects?


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

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Which of the following statements generally apply to the cash flows of a financing type project? I.nonconventional cash flows II.cash outflows exceed cash inflows prior to any time value adjustments III.cash for services rendered is received prior to the cash that is spent providing the services IV.the total of all cash flows must equal zero on an unadjusted basis


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

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A project with financing type cash flows is typified by a project that has which one of the following characteristics?


A) conventional cash flows
B) cash flows that extend beyond the acceptable payback period
C) a year or more in the middle of a project where the cash flows are equal to zero
D) a cash inflow at time zero
E) cash inflows which are equal in amount

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Which one of the following statements related to payback and discounted payback is correct?


A) Payback is a better method of analysis than is discounted payback.
B) Discounted payback is used more frequently in business than is payback.
C) Discounted payback does not require a cutoff point like the payback method does.
D) Discounted payback is biased towards long-term projects while payback is biased towards short-term projects.
E) Payback is used more frequently even though discounted payback is a better method.

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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. 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 net present value analysis? A) accept Project A and reject Project B B) reject Project A and accept Project B C) accept both Projects A and B D) reject both Projects A and B E) You cannot make this decision based on net present value analysis. Should you accept or reject these projects based on net present value analysis?


A) accept Project A and reject Project B
B) reject Project A and accept Project B
C) accept both Projects A and B
D) reject both Projects A and B
E) You cannot make this decision based on net present value analysis.

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If a project has a net present value equal to zero,then:


A) the total of the cash inflows must equal the initial cost of the project.
B) the project earns a return exactly equal to the discount rate.
C) a decrease in the project's initial cost will cause the project to have a negative NPV.
D) any delay in receiving the projected cash inflows will cause the project to have a positive NPV.
E) the project's PI must be also be equal to zero.

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How does the net present value (NPV)decision rule relate to the primary goal of financial management,which is creating wealth for shareholders?

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The NPV rule states that a project shoul...

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A project has a net present value of zero.Which one of the following best describes this project?


A) The project has a zero percent rate of return.
B) The project requires no initial cash investment.
C) The project has no cash flows.
D) The summation of all of the project's cash flows is zero.
E) The project's cash inflows equal its cash outflows in current dollar terms.

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E

-What is the net present value of a project that has an initial cash outflow of $34,900 and the following cash inflows? The required return is 15.35 percent. A) -$3,383.25 B) -$2,784.62 C) -$2,481.53 D) $52,311.08 E) $66,416.75 -What is the net present value of a project that has an initial cash outflow of $34,900 and the following cash inflows? The required return is 15.35 percent. -What is the net present value of a project that has an initial cash outflow of $34,900 and the following cash inflows? The required return is 15.35 percent. A) -$3,383.25 B) -$2,784.62 C) -$2,481.53 D) $52,311.08 E) $66,416.75


A) -$3,383.25
B) -$2,784.62
C) -$2,481.53
D) $52,311.08
E) $66,416.75

Correct Answer

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Rosa's Designer Gowns creates exquisite gowns for special occasions on a prepaid basis only.The required return is 8 percent.Rosa has estimated the cash flows for one gown as follows.Should Rosa sell this gown at the price she is currently considering based on the estimated internal rate of return (IRR) ? Rosa's Designer Gowns creates exquisite gowns for special occasions on a prepaid basis only.The required return is 8 percent.Rosa has estimated the cash flows for one gown as follows.Should Rosa sell this gown at the price she is currently considering based on the estimated internal rate of return (IRR) ? A) Rosa should sell the gown for $155,000. B) Rose can sell the gown for as little as $153,819 and still earn her required return. C) The gown must be sold for a minimum price of $159,259 if Rosa is to earn her required return. D) The IRR decision rule cannot be applied to this project. E) Insufficient information is provided to make a decision based on IRR.


A) Rosa should sell the gown for $155,000.
B) Rose can sell the gown for as little as $153,819 and still earn her required return.
C) The gown must be sold for a minimum price of $159,259 if Rosa is to earn her required return.
D) The IRR decision rule cannot be applied to this project.
E) Insufficient information is provided to make a decision based on IRR.

Correct Answer

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C

Which of the following are advantages of the payback method of project analysis? I.works well for research and development projects II.liquidity bias III.ease of use IV.arbitrary cutoff point


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

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Isaac has analyzed two mutually exclusive projects of similar size and has compiled the following information based on his analysis.Both projects have 3- year lives. Isaac has analyzed two mutually exclusive projects of similar size and has compiled the following information based on his analysis.Both projects have 3- year lives. Isaac has been asked for his best recommendation given this information.His recommendation should be to accept: A) both projects. B) project B because it has the shortest payback period. C) project B and reject project A based on their net present values. D) project A and reject project B based on their average accounting returns. E) neither project. Isaac has been asked for his best recommendation given this information.His recommendation should be to accept:


A) both projects.
B) project B because it has the shortest payback period.
C) project B and reject project A based on their net present values.
D) project A and reject project B based on their average accounting returns.
E) neither project.

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Which one of the following methods of analysis provides the best information on the cost-benefit aspects of a project?


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

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-A project has an initial cost of $18,400 and produces cash inflows of $7,200,$8,900,and $7,500 over three years,respectively.What is the discounted payback period if the required rate of return is 16 percent? A) 2.31 years B) 2.45 years C) 2.55 years D) 2.62 years E) never -A project has an initial cost of $18,400 and produces cash inflows of $7,200,$8,900,and $7,500 over three years,respectively.What is the discounted payback period if the required rate of return is 16 percent?


A) 2.31 years
B) 2.45 years
C) 2.55 years
D) 2.62 years
E) never

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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. 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 average accounting return? A) accept Project A and reject Project B B) reject Project A and accept Project B C) accept both Projects A and B D) reject both Projects A and B E) You cannot make this decision based on the information provided. Should you accept or reject these projects based on the average accounting return?


A) accept Project A and reject Project B
B) reject Project A and accept Project B
C) accept both Projects A and B
D) reject both Projects A and B
E) You cannot make this decision based on the information provided.

Correct Answer

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Which one of the following statements would generally be considered as accurate given independent projects with conventional cash flows?


A) The internal rate of return decision may contradict the net present value decision.
B) Business practice dictates that independent projects should have three distinct accept indicators before a project is actually implemented.
C) The payback decision rule could override the net present value decision rule should cash availability be limited.
D) The profitability index rule cannot be applied in this situation.
E) The projects cannot be accepted unless the average accounting return decision ruling is positive.

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C

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