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Which two methods of project analysis are the most biased towards short-term projects?


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

F) C) and D)
G) C) and E)

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The internal rate of return is defined as the:


A) maximum rate of return a firm expects to earn on a project.
B) rate of return a project will generate if the project in financed solely with internal funds.
C) discount rate that equates the net cash inflows of a project to zero.
D) discount rate which causes the net present value of a project to equal zero.
E) discount rate that causes the profitability index for a project to equal zero.

F) C) and E)
G) A) and C)

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Consider the following two mutually exclusive projects: Consider the following two mutually exclusive projects: What is the crossover rate for these two projects? A) 8.22 percent B) 8.48 percent C) 8.71 percent D) 8.75 percent E) 8.94 percent What is the crossover rate for these two projects?


A) 8.22 percent
B) 8.48 percent
C) 8.71 percent
D) 8.75 percent
E) 8.94 percent

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

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The relevant discount rate for the following set of cash flows is 14 percent.What is the profitability index? The relevant discount rate for the following set of cash flows is 14 percent.What is the profitability index? A) 0.89 B) 0.93 C) 0.99 D) 1.03 E) 1.07


A) 0.89
B) 0.93
C) 0.99
D) 1.03
E) 1.07

F) C) and E)
G) A) and C)

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You are considering an investment with the following cash flows.If the required rate of return for this investment is 15.5 percent, should you accept the investment based solely on the internal rate of return rule? Why or why not? You are considering an investment with the following cash flows.If the required rate of return for this investment is 15.5 percent, should you accept the investment based solely on the internal rate of return rule? Why or why not? 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 cannot apply the IRR rule in this casE.Since the cash flow direction changes twice, there are two IRRs.Thus, the IRR rule cannot be used to determine acceptance or rejection.


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 cannot apply the IRR rule in this casE.Since the cash flow direction changes twice, there are two IRRs.Thus, the IRR rule cannot be used to determine acceptance or rejection.

F) All of the above
G) B) and C)

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Which one of the following methods of analysis provides the best information on the cost-benefit aspects of a project?


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

F) C) and D)
G) C) and E)

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Net present value:


A) is the best method of analyzing mutually exclusive projects.
B) is less useful than the internal rate of return when comparing different sized projects.
C) is the easiest method of evaluation for non-financial managers to use.
D) is less useful than the profitability index when comparing mutually exclusive projects.
E) is very similar in its methodology to the average accounting return.

F) A) and C)
G) B) and E)

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The internal rate of return:


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) A) and E)

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


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

F) A) and E)
G) B) and C)

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Boston Chicken is considering two mutually exclusive projects with the following cash flows.What is the crossover rate? If the required rate of return is lower than the crossover rate, which project should be accepted? Boston Chicken is considering two mutually exclusive projects with the following cash flows.What is the crossover rate? If the required rate of return is lower than the crossover rate, which project should be accepted? A) 14.72 percent; A B) 14.72 percent; B C) 15.99 percent; A D) 15.99 percent; B E) 16.08 percent; B


A) 14.72 percent; A
B) 14.72 percent; B
C) 15.99 percent; A
D) 15.99 percent; B
E) 16.08 percent; B

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

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Which one of the following statements related to the internal rate of return (IRR) is correct?


A) The IRR yields the same accept and reject decisions as the net present value method given mutually exclusive projects.
B) A project with an IRR equal to the required return would reduce the value of a firm if accepted.
C) The IRR is equal to the required return when the net present value is equal to zero.
D) Financing type projects should be accepted if the IRR exceeds the required return.
E) The average accounting return is a better method of analysis than the IRR from a financial point of view.

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

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You are considering a project with conventional cash flows and the following characteristics: You are considering a project with conventional cash flows and the following characteristics: Which of the following statements is correct given this information? I.The discount rate used in computing the net present value was less than 11.63 percent. II.The discounted payback period must be more than 2.98 years. III.The discount rate used in the computation of the profitability ratio was 11.63 percent. IV.This project should be accepted as the internal rate of return exceeds the required return. A) I and II only B) III and IV only C) I, II, and IV only D) II, III, and IV only E) I, II, III, and IV Which of the following statements is correct given this information? I.The discount rate used in computing the net present value was less than 11.63 percent. II.The discounted payback period must be more than 2.98 years. III.The discount rate used in the computation of the profitability ratio was 11.63 percent. IV.This project should be accepted as the internal rate of return exceeds the required return.


A) I and II only
B) III and IV only
C) I, II, and IV only
D) II, III, and IV only
E) I, II, III, and IV

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

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What is the net present value of a project that has an initial cash outflow of $34,900 and the following cash inflows? The required return is 15.35 percent. What is the net present value of a project that has an initial cash outflow of $34,900 and the following cash inflows? The required return is 15.35 percent. A) -$3,383.25 B) -$2,784.62 C) -$2,481.53 D) $52,311.08 E) $66,416.75


A) -$3,383.25
B) -$2,784.62
C) -$2,481.53
D) $52,311.08
E) $66,416.75

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

Correct Answer

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The profitability index is most closely related to which one of the following?


A) payback
B) discounted payback
C) average accounting return
D) net present value
E) modified internal rate of return

F) C) and D)
G) B) and D)

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A project has an initial cost of $27,400 and a market value of $32,600.What is the difference between these two values called?


A) net present value
B) internal return
C) payback value
D) profitability index
E) discounted payback

F) A) and B)
G) B) and C)

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You would like to invest in the following project. You would like to invest in the following project. Sis, your boss, insists that only projects returning at least $1.06 in today's dollars for every $1 invested can be accepted.She also insists on applying a 14 percent discount rate to all cash flows.Based on these criteria, you should: A) accept the project because the PI is 0.90. B) accept the project because the PI is 1.07. C) accept the project because the PI is 1.11. D) reject the project because the PI is 0.90. E) reject the project because the PI is 1.07. Sis, your boss, insists that only projects returning at least $1.06 in today's dollars for every $1 invested can be accepted.She also insists on applying a 14 percent discount rate to all cash flows.Based on these criteria, you should:


A) accept the project because the PI is 0.90.
B) accept the project because the PI is 1.07.
C) accept the project because the PI is 1.11.
D) reject the project because the PI is 0.90.
E) reject the project because the PI is 1.07.

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

Correct Answer

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Which one of the following increases the net present value of a project?


A) an increase in the required rate of return
B) an increase in the initial capital requirement
C) a deferment of some cash inflows until a later year
D) an increase in the aftertax salvage value of the fixed assets
E) a reduction in the final cash inflow

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

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Which one of the following statements would generally be considered as accurate given independent projects with conventional cash flows?


A) The internal rate of return decision may contradict the net present value decision.
B) Business practice dictates that independent projects should have three distinct accept indicators before a project is actually implemented.
C) The payback decision rule could override the net present value decision rule should cash availability be limited.
D) The profitability index rule cannot be applied in this situation.
E) The projects cannot be accepted unless the average accounting return decision ruling is positive.

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

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When the present value of the cash inflows exceeds the initial cost of a project, then the project should be:


A) accepted because the internal rate of return is positive.
B) accepted because the profitability index is greater than 1.
C) accepted because the profitability index is negative.
D) rejected because the internal rate of return is negative.
E) rejected because the net present value is negative.

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

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If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery.These projects are considered to be:


A) independent.
B) interdependent.
C) mutually exclusive.
D) economically scaled.
E) operationally distinct.

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

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