FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 9: Net Present Value and Other Investment Criteria

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 71

Multiple Choice

Review LaterAdd Note

Review Later

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.

F) B) and D)
G) A) and D)

Correct Answer

verified

Show Answer

Question 72

Multiple Choice

Review LaterAdd Note

Review Later

A project has an initial investment of $95,000. Its four year cash inflows are estimated to be $21,000 in year 1, $23,000 in year 2, $25,000 in year 3, and $27,000 in year 4. If the rate of return is 8%, calculate the project's Profitability Index.

A) 1.83
B) 1.53
C) 1.03
D) 0.83
E) 0.53

F) A) and E)
G) B) and D)

Correct Answer

verified

Show Answer

Question 73

Multiple Choice

Review LaterAdd Note

You are going to choose between two investments. Both cost $80,000, but investment A pays $35,000 a year for four years while investment B pays $30,000 a year for five years. If your required return is 13%, which should you choose?

You are to present a proposed capital investment project to your board of directors. The project has a NPV of $12,000 and an IRR of 12%. The firm's required return is 10%. You are to convey your proposal to the board in a single paragraph. Write that paragraph here. Remember, your job is to convince the board to either accept or reject the project, whichever you feel is appropriate given this information.

A project produces annual net income of $11,500, $13,700, and $16,900 over the three years of its life, respectively. The initial cost of the project is $257,000. 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 6.75 %?

You are considering a project that costs $300 and has expected cash flows of $110, $121, and $133.10 over the next three years. If the appropriate discount rate for the project's cash flows is 10%, what is the net present value of this project?

Generally, the most difficult part of utilizing the net present value concept is:

You need to borrow $2,000 quickly, and the local pawn shop will give it to you if you promise to repay them $200.92 monthly over the next year. From the pawn shop's viewpoint, what is the IRR of this transaction?

An increasing emphasis by financial executives on accounting values rather than financial values may have contributed to the change in the primary methods used by chief financial officers to evaluate projects over the past forty years.

You are considering an investment with the following cash flows. If the required rate of return for this investment is 13.5 %, should you accept it based solely on the internal rate of return rule? Why or why not?

ABC Corporation purchased an asset costing $450,000. The asset has an 8 year life, a $50,000 salvage value, and is depreciated on a straight line method. During the past four years, ABC posted net income of $98,000, $112,000, $134,000 and $122,000. Given the following information, calculate the company's average accounting return over the past four years.

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

Use the following mutually exclusive investment cash flows for the question(s) below: Compute the crossover rate for the two projects.

When the decision to accept or reject one project does not affect the decision to accept or reject any other project, the project is said to be:

You are considering the following two mutually exclusive projects with the following cash flows. 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 should accept Project ____ because it has the _____ profitability index of the two projects.

Which of the following is considered to be a redeeming feature of average accounting return analysis?

What is the net present value of a project that has an initial cash outflow of $18,900 and the following cash inflows? The required return is 13.25 %.

Sal is considering a project that costs $15,000. The project produces cash inflows of $3,000, $5,000, $7,000, and $3,000 respectively for the next four years. Sal wants to recoup his money within 3 years after applying a 6% discount rate. Sal should:

Which capital investment evaluation technique is described by the following characteristics? (1) Easy to understand; (2) Biased towards liquidity; (3) Requires an arbitrary cutoff point; (4) Ignores the time value of money.

Project A has a cost of $300 and a three year annual cash flow of $100, $200 and $300. Project B has a cost of $400 and a three year annual cash flow of $185, $215 and $315. Given this information, calculate the IRR cross-over rate.