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Exam 9: Net Present Value and Other Investment Criteria

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Question 31

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A project has a discounted payback period that is equal to the required payback period.Given this,which of the following statements must be true? I.The project must also be acceptable under the payback rule. II.The project must have a profitability index that is equal to or greater than 1.0. III.The project must have a zero net present value. IV.The project's internal rate of return must equal the required return.

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

F) A) and D)
G) All of the above

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Question 32

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How does the net present value (NPV)decision rule relate to the primary goal of financial management,which is creating wealth for shareholders?

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The NPV rule states that a project shoul...

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Question 33

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You are viewing a graph that plots the NPVs of a project to various discount rates that could be applied to the project's cash flows.What is the name given to this graph?

A project has an initial cost of $18,400 and produces cash inflows of $7,200,$8,900,and $7,500 over three years,respectively.What is the discounted payback period if the required rate of return is 16 percent?

A project has an initial cost of $32,000 and a 3-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 $1,200,$2,300,and $1,800 a year for the next 3 years,respectively.What is the average accounting return?

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.

Based on the profitability index rule,should a project with the following cash flows be accepted if the discount rate is 14 percent? Why or why not?

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.

The final decision on which one of two mutually exclusive projects to accept ultimately depends upon which one of the following?

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

Which one of the following statements related to payback and discounted payback is correct?

The relevant discount rate for the following set of cash flows is 14 percent.What is the profitability index?

Graphing the crossover point helps explain:

Which of the following are definite indicators of an accept decision for an independent project with conventional cash flows? I.positive net present value II.profitability index greater than zero III.internal rate of return greater than the required rate IV.positive internal rate of return

You are analyzing the following two mutually exclusive projects and have developed the following information.What is the crossover rate?

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

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:

In actual practice,managers frequently use the: I.average accounting return method because the information is so readily available. II.internal rate of return because the results are easy to communicate and understand. III.discounted payback because of its simplicity. IV.net present value because it is considered by many to be the best method of analysis.

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

You are considering the following two mutually exclusive projects.Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project.Neither project has any salvage value. Should you accept or reject these projects based on the profitability index?