FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: Net Present Value and Other Investment Rules

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

Multiple Choice

Review LaterAdd Note

Review Later

The difference between the present value of an investment and its cost is the:

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

Correct Answer

verified

Show Answer

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

Graphing the NPVs of mutually exclusive projects over different discount rates helps demonstrate:

A) how the incremental IRR varies with changes in the discount rate.
B) how decisions concerning mutually exclusive projects are derived.
C) how the duration of a project affects the decision as to which project to accept.
D) how the payback period and the initial cash outflow of a project are related.
E) how the profitability index and the net present value are related.

Correct Answer

verified

Show Answer

Question 3

Multiple Choice

Review LaterAdd Note

A project has average net income of £2,100 a year over its 4-year life.The initial cost of the project is £65,000 which will be depreciated using straight-line depreciation to a book value of zero over The life of the project.The firm wants to earn a minimal average accounting return of 8.5%.The firm Should _____ the project based on the AAR of _____.

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?

Consider an investment with an initial cost of £20,000 and is expected to last for 5 years.The expected cash flow in years 1 and 2 are £5,000, in years 3 and 4 are £5,500 and in year 5 is £1,000. The total cash inflow is expected to be £22,000 or an average of £4,400 per year.Compute the Payback period in years.

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

Accepting positive NPV projects benefits the shareholders because:

Net present value:

What is the net present value of a project with the following cash flows and a required return of $12 \%$ ?

The problem of multiple IRRs can occur when:

Based on the profitability index (PI) rule, should a project with the following cash flows be accepted if the discount rate is $8 \%$ ? Why or why not?

A project produces annual net income of £9,500, £12,500, and £15,500 over the three years of its life, respectively.The initial cost of the project is £260,400.This cost is depreciated straight-line to a Zero book value over three years.What is the average accounting rate of return if the required Discount rate is 7%?

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

Internal rate of return: I.handles the the positive and negative cash flows throughout the life span of a project effectively. II) requires the use of a discount rate. III) does not require the use of a discount rate.

A project will produce cash inflows of €1,750 a year for four years.The project initially costs €10,600 to get started.In year five, the project will be closed and as a result should produce a cash inflow of €8,500.What is the net present value of this project if the required rate of return is 13.75%?

When two projects both require the total use of the same limited economic resource, the projects are generally considered to be:

It will cost £2,600 to acquire a small ice cream cart.Cart sales are expected to be £1,400 a year for three years.After the three years, the cart is expected to be worthless as that is the expected Remaining life of the cooling system.What is the payback period of the ice cream cart?

$\begin{array}{l}\text { You are analyzing a project and have prepared the following data: }\\\begin{array} { | l | l | } \hline \text { Year } & \text { Cash Flow } \\\hline 0 & - £ 169,000 \\\hline 1 & £ 46,200 \\\hline 2 & £ 87,300 \\\hline 3 & £ 41,000 \\\hline 4 & £ 39,000 \\\hline\end{array}\end{array}$ Required payback period: 2.5 years Required AAR: 7.25% Required return: 8.50% Based on the profitability index of _____ for this project, you should _____ the project.

What is the net present value of a project that has an initial cash outflow of $£ 12,670$ and the following cash inflows? The required return is $11.5 \%$ .

Which of the following methods of project analysis are biased towards short-term projects? I.internal rate of return II) accounting rate of return III) payback IV) discounted payback