Question 1

You are trying to determine whether to accept project A or project B.These projects are mutually exclusive.As part of your analysis, you should compute the incremental IRR by determining:

Accepted Answer

A)  the internal rate of return for the cash ﬂows of each project.
B)  the net present value of each project using the internal rate of return as the discount rate.
C)  the discount rate that equates the discounted payback periods for each project.
D)  the discount rate that makes the net present value of each project equal to 1.
E)  the internal rate of return for the differences in the cash ﬂows of the two projects.F) A) and B)
G) D) and E)

Question 2

The discount rate that makes the net present value of an investment exactly equal to zero is called the:

Accepted Answer

A)  external rate of return.
B)  internal rate of return.
C)  average accounting return.
D)  proﬁtability index.
E)  equalizer.F) B) and D)
G) All of the above

Question 3

You are analyzing a project and have prepared the following data: 
  Year  Cash Flow 0−£169,0001£46,2002£87,3003£41,0004£39,000\begin{array} { | l | l | } \hline 	ext { Year } & 	ext { Cash Flow } \\hline 0 & - £ 169,000 \\hline 1 & £ 46,200 \\hline 2 & £ 87,300 \\hline 3 & £ 41,000 \\hline 4 & £ 39,000 \\hline\end{array} Year 01234​ Cash Flow −£169,000£46,200£87,300£41,000£39,000​​ 
Required payback period: 2.5 years Required AAR: 7.25% Required return: 8.50%
Based on the net present value of _____for this project, you should _____ the project.

Accepted Answer

A)  -£2,021.28; reject
B)  -£406.19; reject
C)  £7,978.72; accept
D)  £9,836.74; accept
E)  £12,684.23; accept F) B) and E)
G) None of the above

Question 4

Jack is considering adding toys to his general store.He estimates that the cost of inventory will be £4,200.The remodeling expenses and shelving costs are estimated at £1,500.Toy sales are
Expected to produce net cash inﬂows of £1,200, £1,500, £1,600, and £1,750 over the next four years,
Respectively.Should Jack add toys to his store if he assigns a three-year payback period to this
Project?

Accepted Answer

A)  yes; because the payback period is 2.94 years.
B)  yes; because the payback period is 2.02 years.
C)  yes; because the payback period is 3.80 years.
D)  no; because the payback period is 2.02 years.
E)  no; because the payback period is 3.80 years.F) B) and C)
G) A) and D)

Question 5

Which one of the following statements concerning net present value (NPV)  is correct?

Accepted Answer

A)  An investment should be accepted if, and only if, the NPV is exactly equal to zero.
B)  An investment should be accepted only if the NPV is equal to the initial cash ﬂow.
C)  An investment should be accepted if the NPV is positive and rejected if it is negative.
D)  An investment with greater cash inﬂows than cash outﬂows, regardless of when the cashﬂows occur, will always have a positive NPV and therefore should always be accepted.
E)  Any project that has positive cash ﬂows for every time period after the initial investmentShould be accepted.F) A) and D)
G) B) and E)

Question 6

The length of time required for an investment to generate cash ﬂows suﬃcient to recover the initial cost of the investment is called the:

Accepted Answer

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

Question 7

You are analyzing a project and have prepared the following data:  Year  Cash Flow 0−£169,0001£46,2002£87,3003£41,0004£39,000\begin{array}{l}	ext { You are analyzing a project and have prepared the following data: }\\begin{array} { | l | l | } \hline 	ext { Year } & 	ext { Cash Flow } \\hline 0 & - £ 169,000 \\hline 1 & £ 46,200 \\hline 2 & £ 87,300 \\hline 3 & £ 41,000 \\hline 4 & £ 39,000 \\hline\end{array}\end{array} You are analyzing a project and have prepared the following data:  Year 01234​ Cash Flow −£169,000£46,200£87,300£41,000£39,000​​​  Required payback period: 2.5 years Required AAR: 7.25%
Required return: 8.50%
Based on the internal rate of return of _____for this project, you should _____ the project.

Accepted Answer

A)  8.95%; accept
B)  10.75%; accept
C)  8.44%; reject
D)  9.67%; reject
E)  10.33%; reject F) B) and D)
G) C) and D)

Question 8

The payback period rule:

Accepted Answer

A)   determines a cutoff point so that all projects accepted by the NPV rule will be accepted bythe payback period rule.
B)   determines a cutoff point so that depreciation is just equal to positive cash ﬂows in thepayback year.
C)   requires an arbitrary choice of a cutoff point.
D)   varies the cutoff point with the interest rate.
E)   requires two cut-off points to control cash ﬂows in each period.F) None of the above
G) D) and E)

Question 9

The Winston Co. is considering two mutually exclusive projects with the following cash flows. What is the the incremental IRR?

Accepted Answer

A)  14.94%.
B)  13.94%.
C)  15.44%..
D)  15.44%.
E)  15.86%.F) A) and E)
G) C) and E)

Question 10

The internal rate of return tends to be:

Accepted Answer

A)  easier for managers to comprehend than the net present value.
B)  extremely accurate even when cash ﬂow estimates are faulty.
C)  ignored by most ﬁnancial analysts.
D)  used primarily to differentiate between mutually exclusive projects.
E)  utilized in project analysis only when multiple net present values apply.F) D) and E)
G) A) and E)

Question 11

Matt is analyzing two mutually exclusive projects of similar size and has prepared the following data. Both projects have 5 year lives.

Matt has been asked for his best recommendation given this information. His recommendation should be to accept:

Accepted Answer

A)  project B because it has the shortest payback period.
B)  both projects as they both have positive net present values.
C)  project A and reject project B based on their net present values.
D)  project B and reject project A based on their average accounting returns.
E)  project B and reject project A based on both the payback period and the averageAccounting return.F) All of the above
G) A) and C)

Question 12

The Liberty Co.is considering two projects.Project A consists of building a wholesale book outlet on lot #169 of the Englewood Retail Center.Project B consists of building a sit-down restaurant on
Lot #169 of the Englewood Retail Center.When trying to decide whether to build the book outlet or
The restaurant, management should rely most heavily on the analysis results from the _____
Method of analysis.

Accepted Answer

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

Question 13

All else constant, the net present value of a typical investment 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 periodicallyThroughout the life of the project.F) None of the above
G) B) and C)

Question 14

You are analyzing the following two mutually exclusive projects and have developed the following information. What is the incremental IRR?
\begin{tabular} { | l | l | l | } 
\hline Year & Project A & Project B \
\hline 0 &  £84,500£ 84,500£84,500  &  £76,900£ 76,900£76,900  \
\hline 1 &  £29,000£ 29,000£29,000  &  £25,000£ 25,000£25,000  \
\hline 2 &  £40,000£ 40,000£40,000  &  £35,000£ 35,000£35,000  \
\hline 3 &  £27,000£ 27,000£27,000  &  £26,000£ 26,000£26,000  \
\hline
\end{tabular}

Accepted Answer

A)  11.11%
B)  13.01%
C)  14.91%
D)  16.75%
E)  17.90% F) B) and D)
G) A) and E)

Question 15

List and brieﬂy discuss the advantages and disadvantages of the internal rate of return (IRR) rule.

Accepted Answer

The advantages of the rule are its close...

Question 16

The internal rate of return may be deﬁned as:

Accepted Answer

A)  the discount rate that makes the NPV cash ﬂows equal to zero.
B)  the difference between the market rate of interest and the NPV.
C)  the market rate of interest less the risk-free rate.
D)  the project acceptance rate set by management.
E)  None of the above.F) B) and C)
G) B) and E)

Question 17

The proﬁtability index is closely related to:

Accepted Answer

A)  payback.
B)  discounted payback.
C)  average accounting return.
D)  net present value.
E)  internal rate of return.F) B) and C)
G) A) and D)

Question 18

An investment cost £10,000 with expected cash ﬂows of £3,000 for 5 years.The discount rate is 15.2382%.The NPV is ___ and the IRR is ___ for the project.

Accepted Answer

A)  £0; 15.2382%
B)  £3.33; 27.2242%
C)  £5,000; 0%
D)  Can not answer without one or the other value as input.
E)  None of the above.F) A) and B)
G) B) and D)

Question 19

The payback period rule is a convenient and useful tool because:

Accepted Answer

A)  it provides a quick estimate of how rapidly the initial investment will be recouped.
B)  results of a short payback rule decision will be quickly seen.
C)  it does not have to take into account time value of money.
D)  All of the above.
E)  None of the above.F) None of the above
G) B) and E)

Question 20

Brounen, et al.(2006)  found that ___ and ___ were the two most popular capital budgeting methods in the UK.

Accepted Answer

A)  Internal Rate of Return; Payback Period
B)  Internal Rate of Return; Net Present Value
C)  Net Present Value; Payback Period
D)  Modiﬁed Internal Rate of Return; Internal Rate of Return
E)  Modiﬁed Internal Rate of Return; Net Present ValueF) B) and D)
G) A) and B)

Exam 6: Net Present Value and Other Investment Rules

The payback period rule:

Correct Answer
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An investment cost £10,000 with expected cash ﬂows of £3,000 for 5 years.The discount rate is 15.2382%.The NPV is _ and the IRR is _ for the project.

Correct Answer
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List and brieﬂy discuss the advantages and disadvantages of the internal rate of return (IRR) rule.

Correct Answer
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The advantages of the rule are its close...
View Answer

The Winston Co. is considering two mutually exclusive projects with the following cash flows. What is the the incremental IRR?

Correct Answer
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The internal rate of return tends to be:

Correct Answer
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Brounen, et al.(2006) found that _ and _ were the two most popular capital budgeting methods in the UK.

Correct Answer
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The proﬁtability index is closely related to:

Correct Answer
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All else constant, the net present value of a typical investment project increases when:

Correct Answer
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Correct Answer
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The payback period rule is a convenient and useful tool because:

Correct Answer
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The length of time required for an investment to generate cash ﬂows suﬃcient to recover the initial cost of the investment is called the:

Correct Answer
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Which one of the following statements concerning net present value (NPV) is correct?

Correct Answer
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The discount rate that makes the net present value of an investment exactly equal to zero is called the:

Correct Answer
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Correct Answer
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You are trying to determine whether to accept project A or project B.These projects are mutually exclusive.As part of your analysis, you should compute the incremental IRR by determining:

Correct Answer
verified

Correct Answer
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Matt is analyzing two mutually exclusive projects of similar size and has prepared the following data. Both projects have 5 year lives. Matt has been asked for his best recommendation given this information. His recommendation should be to accept:

Correct Answer
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The internal rate of return may be deﬁned as:

Correct Answer
verified

Exam 6: Net Present Value and Other Investment Rules

The payback period rule:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An investment cost £10,000 with expected cash ﬂows of £3,000 for 5 years.The discount rate is 15.2382%.The NPV is ___ and the IRR is ___ for the project.

Correct AnswerverifiedShow Answer

List and brieﬂy discuss the advantages and disadvantages of the internal rate of return (IRR) rule.

Correct AnswerverifiedThe advantages of the rule are its close...View AnswerShow Answer

The Winston Co. is considering two mutually exclusive projects with the following cash flows. What is the the incremental IRR?

Correct AnswerverifiedShow Answer

The internal rate of return tends to be:

Correct AnswerverifiedShow Answer

Brounen, et al.(2006) found that ___ and ___ were the two most popular capital budgeting methods in the UK.

Correct AnswerverifiedShow Answer

The proﬁtability index is closely related to:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The payback period rule is a convenient and useful tool because:

Correct AnswerverifiedShow Answer

The length of time required for an investment to generate cash ﬂows suﬃcient to recover the initial cost of the investment is called the:

Correct AnswerverifiedShow Answer

Which one of the following statements concerning net present value (NPV) is correct?

Correct AnswerverifiedShow Answer

The discount rate that makes the net present value of an investment exactly equal to zero is called the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You are trying to determine whether to accept project A or project B.These projects are mutually exclusive.As part of your analysis, you should compute the incremental IRR by determining:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Matt is analyzing two mutually exclusive projects of similar size and has prepared the following data. Both projects have 5 year lives. Matt has been asked for his best recommendation given this information. His recommendation should be to accept:

Correct AnswerverifiedShow Answer

The internal rate of return may be deﬁned as:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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An investment cost £10,000 with expected cash ﬂows of £3,000 for 5 years.The discount rate is 15.2382%.The NPV is _ and the IRR is _ for the project.

Correct Answer
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Correct Answer
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The advantages of the rule are its close...
View Answer

Correct Answer
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Correct Answer
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Brounen, et al.(2006) found that _ and _ were the two most popular capital budgeting methods in the UK.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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