Question 1

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:

Accepted Answer

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.F) All of the above
G) D) and E)

Question 2

Which one of the following increases the net present value of a project?

Accepted Answer

A)  an increase in the required rate of return
B)  an increase in the initial capital requirement
C)  a deferment of some cash inflows until a later year
D)  an increase in the aftertax salvage value of the fixed assets
E)  a reduction in the final cash inflowF) None of the above
G) C) and D) D

Question 3

An investment project costs $21,500 and has annual cash flows of $6,500 for 6 years.If the discount rate is 15 percent,what is the discounted payback period?

Accepted Answer

A)  4.41 years
B)  4.91 years
C)  5.12 years
D)  5.40 years
E)  neverF) A) and E)
G) A) and D) B

Question 4

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?

Accepted Answer

A)  14.72 percent; A
B)  14.72 percent; B
C)  15.99 percent; A
D)  15.99 percent; B
E)  16.08 percent; BF) A) and B)
G) C) and E)

Question 5

What is the profitability index for an investment with the following cash flows given a 14.5 percent required return?

Accepted Answer

A)  0.94
B)  0.98
C)  1.02
D)  1.06
E)  1.11F) B) and C)
G) All of the above

Question 6

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

Accepted Answer

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 onlyF) None of the above
G) All of the above

Question 7

A project produces annual net income of $46,200,$51,800,and $62,900 over its 3-year life,respectively.The initial cost of the project is $675,000.This cost is depreciated straight-line to a zero book value over three years.What is the average accounting rate of return if the required discount rate is 14.5 percent?

Accepted Answer

A)  15.89 percent
B)  16.67 percent
C)  18.98 percent
D)  20.25 percent
E)  23.84 percentF) A) and E)
G) C) and D)

Question 8

The length of time a firm must wait to recoup the money it has invested in a project is called the:

Accepted Answer

A)  internal return period.
B)  payback period.
C)  profitability period.
D)  discounted cash period.
E)  valuation period.F) A) and E)
G) A) and B) B

Question 9

A project will produce cash inflows of $2,800 a year for 4 years with a final cash inflow of $5,700 in year 5.The project's initial cost is $9,500.What is the net present value of this project if the required rate of return is 16 percent?

Accepted Answer

A)  -$311.02
B)  $1,048.75
C)  $4,650.11
D)  $9,188.98
E)  $11,168.02F) A) and C)
G) A) and D)

Question 10

Southern Chicken is considering two projects.Project A consists of creating an outdoor eating area on the unused portion of the restaurant's property.Project B would use that outdoor space for creating a drive-thru service window.When trying to decide which project to accept,the firm should rely most heavily on which one of the following analytical methods?

Accepted Answer

A)  profitability index
B)  internal rate of return
C)  payback
D)  net present value
E)  accounting rate of returnF) None of the above
G) C) and D)

Question 11

Scott is considering a project that will produce cash inflows of $2,100 a year for 4 years.The project has a 12 percent required rate of return and an initial cost of $6,000.What is the discounted payback period?

Accepted Answer

A)  3.72 years
B)  3.91 years
C)  4.26 years
D)  4.38 years
E)  neverF) None of the above
G) All of the above

Question 12

The internal rate of return is:

Accepted Answer

A)  the discount rate that makes the net present value of a project equal to the initial cash outlay.
B)  equivalent to the discount rate that makes the net present value equal to one.
C)  tedious to compute without the use of either a financial calculator or a computer.
D)  highly dependent upon the current interest rates offered in the marketplace.
E)  a better methodology than net present value when dealing with unconventional cash flows.F) C) and D)
G) A) and E)

Question 13

Home Décor & More is considering a proposed project with the following cash flows.Should this project be accepted based on the combination approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 16 percent? Why or why not?

Accepted Answer

A)  Yes; The MIRR is 14.78 percent.
B)  Yes; The MIRR is 17.42 percent.
C)  No; The MIRR is 12.91 percent.
D)  No; The MIRR is 14.78 percent.
E)  No; The MIRR is 17.42 percent.F) B) and D)
G) B) and C)

Question 14

A project that provides annual cash flows of $12,600 for 12 years costs $65,000 today.At what rate would you be indifferent between accepting the project and rejecting it?

Accepted Answer

A)  15.28 percent
B)  15.40 percent
C)  15.51 percent
D)  16.18 percent
E)  16.74 percentF) B) and E)
G) A) and D)

Question 15

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?

Accepted Answer

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

Question 16

You're trying to determine whether to expand your business by building a new manufacturing plant.The plant has an installation cost of $12 million,which will be depreciated straight-line to zero over its 4-year life.The plant has projected net income of $1,095,000,$902,000,$1,412,000,and $1,724,000 over these 4 years.What is the average accounting return?

Accepted Answer

A)  10.70 percent
B)  15.63 percent
C)  18.87 percent
D)  21.39 percent
E)  23.05 percentF) A) and B)
G) None of the above

Question 17

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

Accepted Answer

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 amountF) A) and E)
G) None of the above

Question 18

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?

Accepted Answer

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.F) All of the above
G) D) and E)

Question 19

You are analyzing a project and have gathered the following data:  Based on the internal rate of return of _____ percent for this project,you should _____ the project.

Accepted Answer

A)  14.67; accept
B)  17.91; accept
C)  14.67; reject
D)  17.91; reject
E)  18.46; rejectF) A) and B)
G) All of the above

Question 20

Alicia is considering adding toys to her gift shop.She estimates that the cost of inventory will be $7,500.The remodeling expenses and shelving costs are estimated at $1,800.Toy sales are expected to produce net cash inflows of $2,300,$2,900,$3,200,and $3,400 over the next four years,respectively.Should Alicia add toys to her store if she assigns a three-year payback period to this project? Why or why not?

Accepted Answer

A)  No; The payback period is 2.93 years.
B)  No; The payback period is 3.26 years.
C)  Yes; The payback period is 2.93 years.
D)  Yes; The payback period is 3.01 years.
E)  Yes; The payback period is 3.26 years.F) B) and D)
G) C) and E)

Exam 9: Net Present Value and Other Investment Criteria

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:

Correct Answer
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Which one of the following increases the net present value of a project?

Correct Answer
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D

An investment project costs $21,500 and has annual cash flows of $6,500 for 6 years.If the discount rate is 15 percent,what is the discounted payback period?

Correct Answer
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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?

Correct Answer
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What is the profitability index for an investment with the following cash flows given a 14.5 percent required return?

Correct Answer
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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

Correct Answer
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The length of time a firm must wait to recoup the money it has invested in a project is called the:

Correct Answer
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B

A project will produce cash inflows of $2,800 a year for 4 years with a final cash inflow of $5,700 in year 5.The project's initial cost is $9,500.What is the net present value of this project if the required rate of return is 16 percent?

Correct Answer
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Correct Answer
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Scott is considering a project that will produce cash inflows of $2,100 a year for 4 years.The project has a 12 percent required rate of return and an initial cost of $6,000.What is the discounted payback period?

Correct Answer
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The internal rate of return is:

Correct Answer
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Home Décor & More is considering a proposed project with the following cash flows.Should this project be accepted based on the combination approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 16 percent? Why or why not?

Correct Answer
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A project that provides annual cash flows of $12,600 for 12 years costs $65,000 today.At what rate would you be indifferent between accepting the project and rejecting it?

Correct Answer
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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?

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

Correct Answer
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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?

Correct Answer
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You are analyzing a project and have gathered the following data: Based on the internal rate of return of _ percent for this project,you should _ the project.

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Exam 9: Net Present Value and Other Investment Criteria

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:

Correct AnswerverifiedShow Answer

Which one of the following increases the net present value of a project?

Correct AnswerverifiedD

An investment project costs $21,500 and has annual cash flows of $6,500 for 6 years.If the discount rate is 15 percent,what is the discounted payback period?

Correct AnswerverifiedB

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?

Correct AnswerverifiedShow Answer

What is the profitability index for an investment with the following cash flows given a 14.5 percent required return?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The length of time a firm must wait to recoup the money it has invested in a project is called the:

Correct AnswerverifiedB

A project will produce cash inflows of $2,800 a year for 4 years with a final cash inflow of $5,700 in year 5.The project's initial cost is $9,500.What is the net present value of this project if the required rate of return is 16 percent?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Scott is considering a project that will produce cash inflows of $2,100 a year for 4 years.The project has a 12 percent required rate of return and an initial cost of $6,000.What is the discounted payback period?

Correct AnswerverifiedShow Answer

The internal rate of return is:

Correct AnswerverifiedShow Answer

Home Décor & More is considering a proposed project with the following cash flows.Should this project be accepted based on the combination approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 16 percent? Why or why not?

Correct AnswerverifiedShow Answer

A project that provides annual cash flows of $12,600 for 12 years costs $65,000 today.At what rate would you be indifferent between accepting the project and rejecting it?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

You are analyzing a project and have gathered the following data: Based on the internal rate of return of _____ percent for this project,you should _____ the project.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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D

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B

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B

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You are analyzing a project and have gathered the following data: Based on the internal rate of return of _ percent for this project,you should _ the project.

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Correct Answer
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