FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 5: Net Present Value and Other Investment Criteria

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 31

Multiple Choice

Review LaterAdd Note

Review Later

Internal rate of return (IRR) method is also called the:

A) discounted payback period method.
B) discounted cash-flow (DCF) rate of return method.
C) modified internal rate of return (MIRR) method.
D) book rate of return method.

Correct Answer

verified

Show Answer

Question 32

Multiple Choice

Review LaterAdd Note

Review Later

The cost of a new machine is $250,000.The machine has a five-year life and no salvage value.If the cash flow each year is equal to 25% of the cost of the machine,calculate the payback period for the project:

A) 2.0 years
B) 2.5 years
C) 3.0 years
D) 4.0 years

Correct Answer

verified

Show Answer

Question 33

Essay

Review LaterAdd Note

Briefly discuss capital rationing.

The quickest way to calculate the internal rate of return (IRR) of a project is by:

Given the following cash flows for project Z: C₀ = -1,000,C₁ = 600,C₂ = 720,and C₃ = 2,000,calculate the discounted payback period for the project at a discount rate of 20%.

The internal rate of return is the discount rate that makes the NPV of a project's cash flows equal to zero.

The denominator of the profitability index is the present value of the investment.

The benefit-cost ratio is equal to the profitability index plus one.

The survey of CFOs indicates that the NPV method is always,or almost always,used for evaluating investment projects by approximately:

Which of the following investment rules may not use all possible cash flows in its calculations?

The profitability index is the ratio of the:

Decommissioning and clean-up costs for any project is always insignificant and should typically be ignored.

The payback rule ignores all cash flows after the cutoff date.

The payback period rule:

Soft rationing may be used to control managerial behavior.

Driscoll Company is considering investing in a new project.The project will need an initial investment of $2,400,000 and will generate $1,200,000 (after-tax) cash flows for three years.Calculate the IRR for the project.

Mass Company is investing in a giant crane.It is expected to cost $6.0 million in initial investment,and it is expected to generate an end-of-year cash flow of $3.0 million each year for three years.At the end of the fourth year,there will be a $1.0 million disposal cost.Calculate the MIRR for the project if the cost of capital is 12%.

What are some of the disadvantages of using the IRR method?

Which of the following investment rules does NOT use the time value of money concept?

Which of the following methods of evaluating capital investment projects incorporates the time value of money concept? i.payback period; II) discounted payback period; III) net present value (NPV) ; IV) internal rate of return