Question 1

A project's average net income divided by its average book value is referred to as the project's average:

Accepted Answer

A)   net present value. 
B)   internal rate of return. 
C)   accounting return. 
D)   profitability index. 
E)   payback period. F) A) and E)
G) A) and D)

Question 2

A project has an initial cost of $31,300 and a three-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 $1,750, $2,100, and $1,700 a year for the next three years, respectively. What is the average accounting return?

Accepted Answer

A)   12.79 percent
B)   11.82 percent
C)   10.35 percent
D)   11.69 percent
E)   10.14 percentF) A) and B)
G) B) and D)

Question 3

You are comparing two mutually exclusive projects. The crossover point is 12.3 percent. You have determined that you should accept project A if the required return is 13.1 percent. This implies you should:

Accepted Answer

A)   always accept Project A. 
B)   be indifferent to the projects at any discount rate above 13.1 percent. 
C)   always accept Project A if the required return exceeds the crossover rate. 
D)   accept Project B only when the required return is equal to the crossover rate. 
E)   accept Project B if the required return is less than 13.1 percent. F) All of the above
G) A) and C)

Question 4

A proposed project has an initial cost of $38,000 and cash inflows of $12,300, $24,200, and $16,100 for Years 1 through 3, respectively. The required rate of return is 16.8 percent. Based on IRR, should this project be accepted? Why or why not?

Accepted Answer

A)   No; The IRR exceeds the required return.
B)   No; The IRR is less than the required return.
C)   Yes; The IRR exceeds the required return.
D)   Yes; The IRR equals the required return.
E)   No; The IRR equals the required return.F) C) and E)
G) A) and E)

Question 5

A project has an initial cost of $18,400 and expected cash inflows of $7,200, $8,900, and $7,500 over Years 1 to 3, respectively. What is the discounted payback period if the required rate of return is 11.2 percent?

Accepted Answer

A)   2.31 years
B)   2.45 years
C)   2.55 years
D)   2.87 years
E)   NeverF) A) and B)
G) A) and E)

Question 6

An investment costs $152,000 and has projected cash inflows of $71,800, $86,900, and -$11,200 for Years 1 to 3, respectively. If the required rate of return is 15.5 percent, should you accept the investment based solely on the internal rate of return rule? Why or why not?

Accepted Answer

A)   Yes; The IRR exceeds the required return.
B)   Yes; The IRR is less than the required return.
C)   No; The IRR is less than the required return.
D)   No; The IRR exceeds the required return.
E)   You should not apply the IRR rule in this case.F) A) and E)
G) A) and B)

Question 7

Colin is analyzing a 3-year project that has an initial cost of $199,800. This cost will be depreciated straight-line to zero over three years. The projected annual net income for the three years is $11,600, $15,900, and $17,200. If the discount rate is 12 percent, what is the average accounting rate of return?

Accepted Answer

A)   13.94 percent
B)   14.91 percent
C)   15.66 percent
D)   14.75 percent
E)   15.31 percentF) B) and E)
G) A) and B)

Question 8

A project has an initial cost of $6,900. The cash inflows are $850, $2,400, $3,100, and $4,100 over the next four years, respectively. What is the payback period?

Accepted Answer

A)   3.73 years 
B)   2.51 years
C)   3.13 years 
D)   3.51 years
E)   3.94 yearsF) A) and B)
G) None of the above

Question 9

Swenson's is considering two mutually exclusive projects, Projects A and B, and has determined that the crossover rate for these projects is 11.7 percent. Given this you know that:

Accepted Answer

A)   neither project will be accepted if the discount rate is less than 11.7 percent. 
B)   both projects have a negative NPV at discount rates greater than 11.7 percent. 
C)   both projects provide an internal rate of return of 11.7 percent. 
D)   both projects have a zero NPV at a discount rate of 11.7 percent. 
E)   the project that is acceptable at a discount rate of 11 percent should be rejected at a discount rate of 12 percent. F) B) and D)
G) B) and E)

Question 10

A project has cash flows of -$152,000, $60,800, $62,300 and $75,000 for Years 0 to 3, respectively. The required rate of return is 13 percent. What is the profitability index? Should you accept or reject the project based on this index value?

Accepted Answer

A)   .93; accept
B)   1.07; accept
C)   1.02; accept
D)   .93; reject
E)   1.07 rejectF) A) and B)
G) A) and C)

Question 11

Projects A and B are mutually exclusive and have an initial cost of $82,000 each. Project A provides cash inflows of $34,000 a year for three years while Project B produces a cash inflow of $115,000 in Year 3. Which project(s)  should be accepted if the discount rate is 11.7 percent? What if the discount rate is 13.5 percent?

Accepted Answer

A)   Accept A at both discount rates
B)   Accept A at 11.7 percent and neither at 13.5 percent
C)   Accept B at both discount rates
D)   Accept both at 11.7 percent and neither at 13.5 percent
E)   Accept B at 11.7 percent and neither at 13.5 percentF) A) and C)
G) C) and D)

Question 12

The length of time a firm must wait to recoup, in present value terms, the money it has invested in a project is referred to as the:

Accepted Answer

A)   net present value period. 
B)   internal return period. 
C)   payback period. 
D)   discounted profitability period. 
E)   discounted payback period. F) B) and C)
G) B) and D)

Question 13

The IRR that causes the net present value of the differences between two project's cash flows to equal zero is called the:

Accepted Answer

A)   required return. 
B)   zero-sum rate. 
C)   present value rate. 
D)   break-even rate. 
E)   crossover rate. F) B) and E)
G) All of the above

Question 14

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:

Accepted Answer

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.F) A) and D)
G) None of the above

Question 15

An investment project provides cash flows of $1,562 per year for 10 years. If the initial cost is $8,720, what is the payback period?

Accepted Answer

A)   7.36 years
B)   5.28 years
C)   5.58 years
D)   8.13 years
E)   NeverF) C) and D)
G) A) and B)

Question 16

Mutually exclusive projects are best defined as competing projects that:

Accepted Answer

A)   would need to commence on the same day. 
B)   have the same initial start-up costs. 
C)   both require the total use of the same limited resource. 
D)   both have negative cash outflows at time zero. 
E)   have the same life span. F) B) and D)
G) C) and E)

Question 17

The internal rate of return:

Accepted Answer

A)   may produce multiple rates of return when cash flows are conventional. 
B)   is best used when comparing mutually exclusive projects. 
C)   is rarely used in the business world today. 
D)   is principally used to evaluate small dollar projects. 
E)   is easy to understand. F) B) and E)
G) C) and D)

Question 18

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?

Accepted Answer

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. F) B) and C)
G) A) and D)

Question 19

Applying the discounted payback decision rule to all projects may cause:

Accepted Answer

A)   some positive net present value projects to be rejected. 
B)   the most liquid projects to be rejected in favor of the less liquid projects. 
C)   projects to be incorrectly accepted due to ignoring the time value of money. 
D)   a firm to become more long-term focused. 
E)   some projects to be accepted which would otherwise be rejected under the payback rule. F) A) and B)
G) A) and C)

Question 20

A project has cash flows of -$108,000, $52,800, $53,200, and $83,100 for Years 0 to 3, respectively. The required payback period is two years. Based on the payback period of ________ years for this project, you should ________ the project.

Accepted Answer

A)   1.98; accept
B)   1.79; accept
C)   2.46; accept
D)   2.02; reject
E)   2.29; rejectF) A) and D)
G) A) and B)

Exam 9: Net Present Value and Other Investment Criteria

A proposed project has an initial cost of $38,000 and cash inflows of $12,300, $24,200, and $16,100 for Years 1 through 3, respectively. The required rate of return is 16.8 percent. Based on IRR, should this project be accepted? Why or why not?

Correct Answer
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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?

Correct Answer
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Correct Answer
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The internal rate of return:

Correct Answer
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Correct Answer
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The length of time a firm must wait to recoup, in present value terms, the money it has invested in a project is referred to as the:

Correct Answer
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A project's average net income divided by its average book value is referred to as the project's average:

Correct Answer
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The IRR that causes the net present value of the differences between two project's cash flows to equal zero is called the:

Correct Answer
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An investment costs $152,000 and has projected cash inflows of $71,800, $86,900, and -$11,200 for Years 1 to 3, respectively. If the required rate of return is 15.5 percent, should you accept the investment based solely on the internal rate of return rule? Why or why not?

Correct Answer
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Swenson's is considering two mutually exclusive projects, Projects A and B, and has determined that the crossover rate for these projects is 11.7 percent. Given this you know that:

Correct Answer
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Mutually exclusive projects are best defined as competing projects that:

Correct Answer
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Correct Answer
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Applying the discounted payback decision rule to all projects may cause:

Correct Answer
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A project has an initial cost of $18,400 and expected cash inflows of $7,200, $8,900, and $7,500 over Years 1 to 3, respectively. What is the discounted payback period if the required rate of return is 11.2 percent?

Correct Answer
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An investment project provides cash flows of $1,562 per year for 10 years. If the initial cost is $8,720, what is the payback period?

Correct Answer
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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:

Correct Answer
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A project has cash flows of -$152,000, $60,800, $62,300 and $75,000 for Years 0 to 3, respectively. The required rate of return is 13 percent. What is the profitability index? Should you accept or reject the project based on this index value?

Correct Answer
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You are comparing two mutually exclusive projects. The crossover point is 12.3 percent. You have determined that you should accept project A if the required return is 13.1 percent. This implies you should:

Correct Answer
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A project has an initial cost of $6,900. The cash inflows are $850, $2,400, $3,100, and $4,100 over the next four years, respectively. What is the payback period?

Correct Answer
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A project has cash flows of -$108,000, $52,800, $53,200, and $83,100 for Years 0 to 3, respectively. The required payback period is two years. Based on the payback period of years for this project, you should the project.

Correct Answer
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Exam 9: Net Present Value and Other Investment Criteria

A proposed project has an initial cost of $38,000 and cash inflows of $12,300, $24,200, and $16,100 for Years 1 through 3, respectively. The required rate of return is 16.8 percent. Based on IRR, should this project be accepted? Why or why not?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The internal rate of return:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The length of time a firm must wait to recoup, in present value terms, the money it has invested in a project is referred to as the:

Correct AnswerverifiedShow Answer

A project's average net income divided by its average book value is referred to as the project's average:

Correct AnswerverifiedShow Answer

The IRR that causes the net present value of the differences between two project's cash flows to equal zero is called the:

Correct AnswerverifiedShow Answer

An investment costs $152,000 and has projected cash inflows of $71,800, $86,900, and -$11,200 for Years 1 to 3, respectively. If the required rate of return is 15.5 percent, should you accept the investment based solely on the internal rate of return rule? Why or why not?

Correct AnswerverifiedShow Answer

Swenson's is considering two mutually exclusive projects, Projects A and B, and has determined that the crossover rate for these projects is 11.7 percent. Given this you know that:

Correct AnswerverifiedShow Answer

Mutually exclusive projects are best defined as competing projects that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Applying the discounted payback decision rule to all projects may cause:

Correct AnswerverifiedShow Answer

A project has an initial cost of $18,400 and expected cash inflows of $7,200, $8,900, and $7,500 over Years 1 to 3, respectively. What is the discounted payback period if the required rate of return is 11.2 percent?

Correct AnswerverifiedShow Answer

An investment project provides cash flows of $1,562 per year for 10 years. If the initial cost is $8,720, what is the payback period?

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

A project has cash flows of -$152,000, $60,800, $62,300 and $75,000 for Years 0 to 3, respectively. The required rate of return is 13 percent. What is the profitability index? Should you accept or reject the project based on this index value?

Correct AnswerverifiedShow Answer

You are comparing two mutually exclusive projects. The crossover point is 12.3 percent. You have determined that you should accept project A if the required return is 13.1 percent. This implies you should:

Correct AnswerverifiedShow Answer

A project has an initial cost of $6,900. The cash inflows are $850, $2,400, $3,100, and $4,100 over the next four years, respectively. What is the payback period?

Correct AnswerverifiedShow Answer

A project has cash flows of -$108,000, $52,800, $53,200, and $83,100 for Years 0 to 3, respectively. The required payback period is two years. Based on the payback period of ________ years for this project, you should ________ the project.

Correct AnswerverifiedShow Answer

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A project has cash flows of -$108,000, $52,800, $53,200, and $83,100 for Years 0 to 3, respectively. The required payback period is two years. Based on the payback period of years for this project, you should the project.

Correct Answer
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