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Ginny Trueblood is considering an investment which will cost her $120,000.The investment produces no cash flows for the first year.In the second year the cash inflow is $35,000.This inflow will increase to $55,000 and then $75,000 for the following two years before ceasing permanently.Ginny requires a 10% rate of return and has a required discounted payback period of three years.Ginny should _____ this project because the discounted payback period is ____.


A) accept;2.03 years
B) accept;2.97 years
C) accept;3.97 years
D) reject;3.03 years
E) reject;3.97 years Ginny Trueblood is considering an investment which will cost her $120,000.The investment produces no cash flows for the first year.In the second year the cash inflow is $35,000.This inflow will increase to $55,000 and then $75,000 for the following two years before ceasing permanently.Ginny requires a 10% rate of return and has a required discounted payback period of three years.Ginny should _____ this project because the discounted payback period is ____. A) accept;2.03 years B) accept;2.97 years C) accept;3.97 years D) reject;3.03 years E) reject;3.97 years

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Given that the net present value (NPV) is generally considered to be the best method of analysis,why should you still use the other methods?


A) The other methods help validate whether or not the results from the net present value analysis are reliable.
B) You need to use the other methods since conventional practice dictates that you only accept projects after you have generated three accept indicators.
C) You need to use other methods because the net present value method is unreliable when a project has unconventional cash flows.
D) The internal rate of return must always indicate acceptance since this is the best method from a financial perspective.
E) The discounted payback method must always be computed to determine if a project returns a positive cash flow since NPV does not measure this aspect of a project.

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You are analyzing two mutually exclusive projects and have developed the following information.What is the incremental IRR? You are analyzing two mutually exclusive projects and have developed the following information.What is the incremental IRR? A) 11.11% B) 13.01% C) 14.91% D) 16.75% E) 17.90%


A) 11.11%
B) 13.01%
C) 14.91%
D) 16.75%
E) 17.90% You are analyzing two mutually exclusive projects and have developed the following information.What is the incremental IRR? A) 11.11% B) 13.01% C) 14.91% D) 16.75% E) 17.90%

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The primary reason that company projects with positive net present values are considered acceptable is that:


A) they create value for the owners of the firm.
B) the project's rate of return exceeds the rate of inflation.
C) they return the initial cash outlay within three years or less.
D) the required cash inflows exceed the actual cash inflows.
E) the investment's cost exceeds the present value of the cash inflows.

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Using internal rate of return,a conventional project should be accepted if the internal rate of return is:


A) equal to the discount rate.
B) greater than the discount rate.
C) less than the discount rate.
D) negative.
E) positive.

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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.


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.

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You are considering two independent projects both of which have been assigned a discount rate of 8%.Based on the profitability index,what is your recommendation concerning these projects? You are considering two independent projects both of which have been assigned a discount rate of 8%.Based on the profitability index,what is your recommendation concerning these projects? A) You should accept both projects since both of their PIs are positive. B) You should accept project A since it has the higher PI. C) You should accept both projects since both of their PIs are greater than 1. D) You should only accept project B since it has the largest PI and the PI exceeds 1. E) Neither project is acceptable.


A) You should accept both projects since both of their PIs are positive.
B) You should accept project A since it has the higher PI.
C) You should accept both projects since both of their PIs are greater than 1.
D) You should only accept project B since it has the largest PI and the PI exceeds 1.
E) Neither project is acceptable. You are considering two independent projects both of which have been assigned a discount rate of 8%.Based on the profitability index,what is your recommendation concerning these projects? A) You should accept both projects since both of their PIs are positive. B) You should accept project A since it has the higher PI. C) You should accept both projects since both of their PIs are greater than 1. D) You should only accept project B since it has the largest PI and the PI exceeds 1. E) Neither project is acceptable.

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Accepting positive NPV projects benefits the stockholders because:


A) it is the most easily understood valuation process.
B) the present value of the expected cash flows are equal to the cost.
C) the present value of the expected cash flows are greater than the cost.
D) it is the most easily calculated.
E) None of the above.

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The internal rate of return may be defined as:


A) the discount rate that makes the NPV 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.

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The IRR rule is said to be a special case of the NPV rule.Explain why this is so and why it has some limitations NPV does not?

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At some K,NPV = $0;by definition,when NP...

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The payback period rule accepts all investment projects in which the payback period for the cash flows is:


A) greater than one.
B) greater than the cutoff point.
C) less than the cutoff point.
D) positive.
E) None of the above.

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A situation in which accepting one investment prevents the acceptance of another investment is called the:


A) net present value profile.
B) operational ambiguity decision.
C) mutually exclusive investment decision.
D) issues of scale problem.
E) multiple choices of operations decision.

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Based on the internal rate of return of _____ for this project,you should _____ the project.


A) 8.95%;accept
B) 10.75%;accept
C) 8.44%;reject
D) 9.67%;reject
E) 10.33%;reject Based on the internal rate of return of _____ for this project,you should _____ the project. A) 8.95%;accept B) 10.75%;accept C) 8.44%;reject D) 9.67%;reject E) 10.33%;reject

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Based on the payback period of _____ for this project,you should _____ the project.


A) 1.87 years;accept
B) 2.87 years;accept
C) 2.87 years;reject
D) 3.13 years;reject
E) 3.87 years;reject Based on the payback period of _____ for this project,you should _____ the project. A) 1.87 years;accept B) 2.87 years;accept C) 2.87 years;reject D) 3.13 years;reject E) 3.87 years;reject

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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:


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

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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 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: 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 other criteria not mentioned in the problem. E) project B and reject project A based on both the payback period and the average accounting return. Matt has been asked for his best recommendation given this information.His recommendation should be to accept:


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 other criteria not mentioned in the problem.
E) project B and reject project A based on both the payback period and the average accounting return.

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A project has an initial cost of $8,600 and produces cash inflows of $3,200,$4,900,and $1,500 over the next three years,respectively.What is the discounted payback period if the required rate of return is 8%?


A) 2.05 years
B) 2.13 years
C) 2.33 years
D) 3.00 years
E) never

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An investment is acceptable if the profitability index (PI) of the investment is:


A) greater than one.
B) less than one.
C) greater than the internal rate of return (IRR) .
D) less than the net present value (NPV) .
E) greater than a pre-specified rate of return.

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Explain the differences and similarities between net present value (NPV)and the profitability index (PI).

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The NPV and PI are basically the same ca...

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The possibility that more than one discount rate will make the NPV of an investment equal to zero is called the _____ problem.


A) net present value profiling
B) operational ambiguity
C) mutually exclusive investment decision
D) issues of scale
E) multiple rates of return

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