Question 1

A 30 year project is estimated to cost $35 million dollars and provide annual cash ﬂows of $5 per year in years 1-5; $4 million per year in years 6-20 and $2 million per year in years 21-30. If the
Company's required rate of return is 10%, determine the discounted payback for the project.

Accepted Answer

A)   15.90 years
B)   13.90 years
C)   11.90 years
D)   9.90 years
E)   7.90 yearsF) B) and D)
G) A) and E)

Question 2

Which of the following is NOT correct?

Accepted Answer

A)   NPV is one of the two or three most important concepts in ﬁnance.
B)   NPV is always just the difference between the market value of an asset or project and its cost.
C)   The ﬁnancial manager acts in the shareholders' best interests by identifying and taking positive NPV projects.
D)   NPV's can normally be directly observed in the market.
E)   Investment criteria other than NPV provide additional information about whether or not a project truly has a positive NPV.F) C) and D)
G) A) and B)

Question 3

Without using formulas, provide a deﬁnition of discounted cash ﬂow (DCF) valuation.

Accepted Answer

The process of valui...

Question 4

Graphing the crossover point helps explain:

Accepted Answer

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) None of the above
G) C) and D)

Question 5

The initial cost of an investment is not an element in computing the internal rate of return method.

Accepted Answer

A) True 
 B)False

Question 6

Consider a project with an initial investment and positive future cash ﬂows. As the discount rate is increased the ___________________.

Accepted Answer

A)   IRR remains constant while the NPV increases
B)   IRR decreases while the NPV remains constant
C)   IRR remains constant while the NPV decreases
D)   IRR increases while the NPV remains constant
E)   IRR decreases while the NPV decreasesF) B) and C)
G) None of the above

Question 7

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?

Accepted Answer

A)   ($8.58) 
B)   $0.00
C)   $0.71
D)   $19.79
E)   $64.10F) B) and D)
G) A) and B)

Question 8

A negative net present value indicates that:

Accepted Answer

A)   A project's cash inﬂows must be less than the project's initial cost.
B)   A project is acceptable.
C)   A project's initial cash outﬂow is greater than the present value of the project's cash inﬂows.
D)   The discount rate is greater than the current market rate of return.
E)   The discount rate applied to the project is less than the project's internal rate of return.F) C) and E)
G) None of the above

Question 9

In actual practice, managers frequently use the AAR because the information is so readily available.

Accepted Answer

A) True 
 B)False

Question 10

You have a choice between two mutually exclusive investments. If you require a 14% return, which investment should you choose?

Accepted Answer

A)   Project B, because it has a smaller initial investment.
B)   Project A, because it has a higher NPV.
C)   Either one, because they have the same proﬁtability indexes.
D)   Project B, because it has the higher internal rate of return.
E)   Project B, because it pays back faster.F) B) and D)
G) B) and E)

Question 11

Payback is frequently used to analyze independent projects because:

Accepted Answer

A)   It considers the time value of money.
B)   All relevant cash ﬂows are included in the analysis.
C)   The cost of the analysis is less than the potential loss from a faulty decision.
D)   It is the most desirable of all the available analytical methods from a ﬁnancial perspective.
E)   It produces better decisions than those made using either NPV or IRR.F) A) and B)
G) B) and D)

Question 12

Projects should be accepted when the proﬁtability index is less than 1.

Accepted Answer

A) True 
 B)False

Question 13

Bodner Corporation purchased an asset costing $475,000. The asset has a 4 year life, no salvage value, and is depreciated on a straight line method. During the past four years, Bodner posted net
Income of $30,000, $25,000, $20,000 and $15,000. Given the following information, calculate the
Company's average accounting return over the past four years.

Accepted Answer

A)   20.15%
B)   18.32%
C)   16.45%
D)   14.51%
E)   12.63%F) None of the above
G) A) and B)

Question 14

All else constant, the net present value of a project increases when:

Accepted Answer

A)   The discount rate increases.
B)   Each cash inﬂow is delayed by one year.
C)   The initial cost of a project increases.
D)   The rate of return decreases.
E)   All cash inﬂows occur during the last year of a project's life instead of periodically throughout the life of the project.F) C) and E)
G) A) and B)

Question 15

An investment has the following cash ﬂows. Should the project be accepted if it has been assigned a required return of 14 percent? Why or why not?

Accepted Answer

A)   No; The IRR exceeds the required return by about 1.08 percent.
B)   No; The IRR is less than the required return by about 0.97 percent.
C)   Yes; The IRR exceeds the required return by about 1.08 percent.
D)   Yes; The IRR is less than the required return by about 0.97 percent
E)   Yes; The IRR is less than the required return by about 1.08 percent.F) B) and D)
G) A) and B)

Question 16

If the internal rate of return on a project is 11.24%, and the project is assigned a 9.5% discount rate,
then the proﬁtability index will be greater than 1.0.

Accepted Answer

A) True 
 B)False

Question 17

Suppose a project costs $300 and produces cash ﬂows of $100 over each of the following six years. What is the IRR of the project?

Accepted Answer

A)   There is not enough information; a discount rate is required
B)   10.0%
C)   24.3%
D)   34.9%
E)   38.1%F) D) and E)
G) A) and E)

Question 18

As the required rate of return increases, the:

Accepted Answer

A)   Net present value increases.
B)   Payback period decreases.
C)   Proﬁtability index decreases.
D)   Discounted payback period decreases.
E)   Average accounting return decreases.F) A) and D)
G) C) and D)

Question 19

You are analyzing a project and have prepared the following data:    Based on the payback period of _____ years for this project, you should _____ the project.

Accepted Answer

A)   3.27; accept
B)   3.27; reject
C)   3.42; accept
D)   3.42; reject
E)   3.51; rejectF) None of the above
G) All of the above

Question 20

A 30 year project is estimated to cost $35 million and provide annual cash ﬂows of $5 million per year in years 1-5; $4 million per year in years 6-20 and $2 million per year in years 21-30. If the
Company's required rate of return is 10%, determine the NPV.

Accepted Answer

A)   $0.67 million
B)   $1.67 million
C)   $2.67 million
D)   $3.67 million
E)   $4.67 millionF) A) and B)
G) A) and C)

Exam 9: Net Present Value and Other Investment Criteria

You have a choice between two mutually exclusive investments. If you require a 14% return, which investment should you choose?

Correct Answer
verified

Consider a project with an initial investment and positive future cash ﬂows. As the discount rate is increased the ___________________.

Correct Answer
verified

A 30 year project is estimated to cost $35 million dollars and provide annual cash ﬂows of $5 per year in years 1-5; $4 million per year in years 6-20 and $2 million per year in years 21-30. If the Company's required rate of return is 10%, determine the discounted payback for the project.

Correct Answer
verified

Suppose a project costs $300 and produces cash ﬂows of $100 over each of the following six years. What is the IRR of the project?

Correct Answer
verified

An investment has the following cash ﬂows. Should the project be accepted if it has been assigned a required return of 14 percent? Why or why not?

Correct Answer
verified

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?

Correct Answer
verified

Which of the following is NOT correct?

Correct Answer
verified

Graphing the crossover point helps explain:

Correct Answer
verified

In actual practice, managers frequently use the AAR because the information is so readily available.

Correct Answer
verified

Correct Answer
verified

A 30 year project is estimated to cost $35 million and provide annual cash ﬂows of $5 million per year in years 1-5; $4 million per year in years 6-20 and $2 million per year in years 21-30. If the Company's required rate of return is 10%, determine the NPV.

Correct Answer
verified

If the internal rate of return on a project is 11.24%, and the project is assigned a 9.5% discount rate, then the proﬁtability index will be greater than 1.0.

Correct Answer
verified

As the required rate of return increases, the:

Correct Answer
verified

The initial cost of an investment is not an element in computing the internal rate of return method.

Correct Answer
verified

You are analyzing a project and have prepared the following data: Based on the payback period of _ years for this project, you should _ the project.

Correct Answer
verified

Without using formulas, provide a deﬁnition of discounted cash ﬂow (DCF) valuation.

Correct Answer
verified
The process of valui...
View Answer

All else constant, the net present value of a project increases when:

Correct Answer
verified

Payback is frequently used to analyze independent projects because:

Correct Answer
verified

Projects should be accepted when the proﬁtability index is less than 1.

Correct Answer
verified

A negative net present value indicates that:

Correct Answer
verified

Exam 9: Net Present Value and Other Investment Criteria

You have a choice between two mutually exclusive investments. If you require a 14% return, which investment should you choose?

Correct AnswerverifiedShow Answer

Consider a project with an initial investment and positive future cash ﬂows. As the discount rate is increased the ___________________.

Correct AnswerverifiedShow Answer

A 30 year project is estimated to cost $35 million dollars and provide annual cash ﬂows of $5 per year in years 1-5; $4 million per year in years 6-20 and $2 million per year in years 21-30. If the Company's required rate of return is 10%, determine the discounted payback for the project.

Correct AnswerverifiedShow Answer

Suppose a project costs $300 and produces cash ﬂows of $100 over each of the following six years. What is the IRR of the project?

Correct AnswerverifiedShow Answer

An investment has the following cash ﬂows. Should the project be accepted if it has been assigned a required return of 14 percent? Why or why not?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Which of the following is NOT correct?

Correct AnswerverifiedShow Answer

Graphing the crossover point helps explain:

Correct AnswerverifiedShow Answer

In actual practice, managers frequently use the AAR because the information is so readily available.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A 30 year project is estimated to cost $35 million and provide annual cash ﬂows of $5 million per year in years 1-5; $4 million per year in years 6-20 and $2 million per year in years 21-30. If the Company's required rate of return is 10%, determine the NPV.

Correct AnswerverifiedShow Answer

If the internal rate of return on a project is 11.24%, and the project is assigned a 9.5% discount rate, then the proﬁtability index will be greater than 1.0.

Correct AnswerverifiedShow Answer

As the required rate of return increases, the:

Correct AnswerverifiedShow Answer

The initial cost of an investment is not an element in computing the internal rate of return method.

Correct AnswerverifiedShow Answer

You are analyzing a project and have prepared the following data: Based on the payback period of _____ years for this project, you should _____ the project.

Correct AnswerverifiedShow Answer

Without using formulas, provide a deﬁnition of discounted cash ﬂow (DCF) valuation.

Correct AnswerverifiedThe process of valui...View AnswerShow Answer

All else constant, the net present value of a project increases when:

Correct AnswerverifiedShow Answer

Payback is frequently used to analyze independent projects because:

Correct AnswerverifiedShow Answer

Projects should be accepted when the proﬁtability index is less than 1.

Correct AnswerverifiedShow Answer

A negative net present value indicates that:

Correct AnswerverifiedShow Answer

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You are analyzing a project and have prepared the following data: Based on the payback period of _ years for this project, you should _ the project.

Correct Answer
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Correct Answer
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The process of valui...
View Answer

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