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Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets.When the project ends,those assets are expected to have an aftertax salvage value of $45,000.How is the $45,000 salvage value handled when computing the net present value of the project?


A) reduction in the cash outflow at time zero
B) cash inflow in the final year of the project
C) cash inflow for the year following the final year of the project
D) cash inflow prorated over the life of the project
E) not included in the net present value

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You are considering a project with conventional cash flows and the following characteristics: You are considering a project with conventional cash flows and the following characteristics: Which of the following statements is correct given this information? I.The discount rate used in computing the net present value was less than 11.63 percent. II.The discounted payback period must be more than 2.98 years. III.The discount rate used in the computation of the profitability ratio was 11.63 percent. IV.This project should be accepted as the internal rate of return exceeds the required return. A) I and II only B) III and IV only C) I,II,and IV only D) II,III,and IV only E) I,II,III,and IV Which of the following statements is correct given this information? I.The discount rate used in computing the net present value was less than 11.63 percent. II.The discounted payback period must be more than 2.98 years. III.The discount rate used in the computation of the profitability ratio was 11.63 percent. IV.This project should be accepted as the internal rate of return exceeds the required return.


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

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There are two distinct discount rates at which a particular project will have a zero net present value.In this situation,the project is said to:


A) have two net present value profiles.
B) have operational ambiguity.
C) create a mutually exclusive investment decision.
D) produce multiple economies of scale.
E) have multiple rates of return.

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Why is payback often used as the sole method of analyzing a proposed small project?


A) Payback considers the time value of money.
B) All relevant cash flows are included in the payback analysis.
C) It is the only method where the benefits of the analysis outweigh the costs of that analysis.
D) Payback is the most desirable of the various financial methods of analysis.
E) Payback is focused on the long-term impact of a project.

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Douglass Interiors is considering two mutually exclusive projects and have determined that the crossover rate for these projects is 11.7 percent.Project A has an internal rate of return (IRR) of 15.3 percent and Project B has an IRR of 16.5 percent.Given this information,which one of the following statements is correct?


A) Project A should be accepted as its IRR is closer to the crossover point than is Project B's IRR.
B) Project B should be accepted as it has the higher IRR.
C) Both projects should be accepted as both of the project's IRRs exceed the crossover rate.
D) Neither project should be accepted since both of the project's IRRs exceed the crossover rate.
E) You cannot determine which project should be accepted given the information provided.

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-A project has an initial cost of $32,000 and a 3-year life.The company uses straight-line depreciation to a book value of zero over the life of the project.The projected net income from the project is $1,200,$2,300,and $1,800 a year for the next 3 years,respectively.What is the average accounting return? A) 8.72 percent B) 11.04 percent C) 11.26 percent D) 14.69 percent E) 15.14 percent -A project has an initial cost of $32,000 and a 3-year life.The company uses straight-line depreciation to a book value of zero over the life of the project.The projected net income from the project is $1,200,$2,300,and $1,800 a year for the next 3 years,respectively.What is the average accounting return?


A) 8.72 percent
B) 11.04 percent
C) 11.26 percent
D) 14.69 percent
E) 15.14 percent

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-A project has an initial cost of $6,500.The cash inflows are $900,$2,200,$3,600,and $4,100 over the next four years,respectively.What is the payback period? A) 1.73 years B) 2.51 years C) 2.94 years D) 3.51 years E) 3.94 years -A project has an initial cost of $6,500.The cash inflows are $900,$2,200,$3,600,and $4,100 over the next four years,respectively.What is the payback period?


A) 1.73 years
B) 2.51 years
C) 2.94 years
D) 3.51 years
E) 3.94 years

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-The Chandler Group wants to set up a private cemetery business.According to the CFO,Barry M.Deep,business is looking up .As a result,the cemetery project will provide a net cash inflow of $57,000 for the firm during the first year,and the cash flows are projected to grow at a rate of 7 percent per year forever.The project requires an initial investment of $759,000.The firm requires a 14 percent return on such undertakings.The company is somewhat unsure about the assumption of a 7 percent growth rate in its cash flows.At what constant rate of growth would the company just break even? A) 4.48 percent B) 5.29 percent C) 5.61 percent D) 6.49 percent E) 6.75 percent -The Chandler Group wants to set up a private cemetery business.According to the CFO,Barry M.Deep,business is "looking up".As a result,the cemetery project will provide a net cash inflow of $57,000 for the firm during the first year,and the cash flows are projected to grow at a rate of 7 percent per year forever.The project requires an initial investment of $759,000.The firm requires a 14 percent return on such undertakings.The company is somewhat unsure about the assumption of a 7 percent growth rate in its cash flows.At what constant rate of growth would the company just break even?


A) 4.48 percent
B) 5.29 percent
C) 5.61 percent
D) 6.49 percent
E) 6.75 percent

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


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

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A project has a required payback period of three years.Which one of the following statements is correct concerning the payback analysis of this project?


A) The cash flows in each of the three years must exceed one-third of the project's initial cost if the project is to be accepted.
B) The cash flow in year three is ignored.
C) The project's cash flow in year three is discounted by a factor of (1 + R) 3.
D) The cash flow in year two is valued just as highly as the cash flow in year one.
E) The project is acceptable whenever the payback period exceeds three years.

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

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The NPV and PI both consider the time va...

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-A firm evaluates all of its projects by using the NPV decision rule.At a required return of 14 percent,the NPV for the following project is _____ and the firm should _____ the project. A) $5,684.22;reject B) $7,264.95;accept C) $7,264.95;reject D) $9,616.93;accept E) $9,616.93;reject -A firm evaluates all of its projects by using the NPV decision rule.At a required return of 14 percent,the NPV for the following project is _____ and the firm should _____ the project. -A firm evaluates all of its projects by using the NPV decision rule.At a required return of 14 percent,the NPV for the following project is _____ and the firm should _____ the project. A) $5,684.22;reject B) $7,264.95;accept C) $7,264.95;reject D) $9,616.93;accept E) $9,616.93;reject


A) $5,684.22;reject
B) $7,264.95;accept
C) $7,264.95;reject
D) $9,616.93;accept
E) $9,616.93;reject

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Western Beef Exporters is considering a project that has an NPV of $32,600,an IRR of 15.1 percent,and a payback period of 3.2 years.The required return is 14.5 percent and the required payback period is 3.0 years.Which one of the following statements correctly applies to this project?


A) The net present value indicates accept while the internal rate of return indicates reject.
B) Payback indicates acceptance.
C) The payback decision rule could override the accept decision indicated by the net present value.
D) The payback rule will automatically be ignored since both the net present value and the internal rate of return indicate an accept decision.
E) The net present value decision rule is the only rule that matters when making the final decision.

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-Day Interiors is considering a project with the following cash flows.What is the IRR of this project? A) 6.42 percent B) 7.03 percent C) 7.48 percent D) 8.22 percent E) 8.56 percent -Day Interiors is considering a project with the following cash flows.What is the IRR of this project? -Day Interiors is considering a project with the following cash flows.What is the IRR of this project? A) 6.42 percent B) 7.03 percent C) 7.48 percent D) 8.22 percent E) 8.56 percent


A) 6.42 percent
B) 7.03 percent
C) 7.48 percent
D) 8.22 percent
E) 8.56 percent

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Which one of the following statements is correct in relation to independent projects?


A) The internal rate of return cannot be used to determine the acceptability of a project that has financing type cash flows.
B) A project with investing type cash flows is acceptable if its internal rate of return exceeds the required return.
C) A project with financing type cash flows is acceptable if its internal rate of return exceeds the required return.
D) The net present value profile is upsloping for projects with both investing and financing type cash flows.
E) Projects with financing type cash flows are acceptable only when the internal rate of return is negative.

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Graphing the crossover point helps explain:


A) why one project is always superior to another project.
B) how decisions concerning mutually exclusive projects are derived.
C) how the duration of a project affects the decision as to which project to accept.
D) how the net present value and the initial cash outflow of a project are related.
E) how the profitability index and the net present value are related.

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Which one of the following will decrease the net present value of a project?


A) increasing the value of each of the project's discounted cash inflows
B) moving each of the cash inflows forward to a sooner time period
C) decreasing the required discount rate
D) increasing the project's initial cost at time zero
E) increasing the amount of the final cash inflow

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-Boston Chicken is considering two mutually exclusive projects with the following cash flows.What is the crossover rate? If the required rate of return is lower than the crossover rate,which project should be accepted? A) 14.72 percent;A B) 14.72 percent;B C) 15.99 percent;A D) 15.99 percent;B E) 16.08 percent;B -Boston Chicken is considering two mutually exclusive projects with the following cash flows.What is the crossover rate? If the required rate of return is lower than the crossover rate,which project should be accepted? -Boston Chicken is considering two mutually exclusive projects with the following cash flows.What is the crossover rate? If the required rate of return is lower than the crossover rate,which project should be accepted? A) 14.72 percent;A B) 14.72 percent;B C) 15.99 percent;A D) 15.99 percent;B E) 16.08 percent;B


A) 14.72 percent;A
B) 14.72 percent;B
C) 15.99 percent;A
D) 15.99 percent;B
E) 16.08 percent;B

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-It will cost $6,000 to acquire an ice cream cart.Cart sales are expected to be $3,600 a year for three years.After the three years,the cart is expected to be worthless as the expected life of the refrigeration unit is only three years.What is the payback period? A) 1.48 years B) 1.67 years C) 1.82 years D) 1.95 years E) 2.00 years -It will cost $6,000 to acquire an ice cream cart.Cart sales are expected to be $3,600 a year for three years.After the three years,the cart is expected to be worthless as the expected life of the refrigeration unit is only three years.What is the payback period?


A) 1.48 years
B) 1.67 years
C) 1.82 years
D) 1.95 years
E) 2.00 years

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In actual practice,managers frequently use the: I.average accounting return method because the information is so readily available. II.internal rate of return because the results are easy to communicate and understand. III.discounted payback because of its simplicity. IV.net present value because it is considered by many to be the best method of analysis.


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

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