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 41

True/False

Review LaterAdd Note

Review Later

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

Correct Answer

verified

Show Answer

Question 42

Multiple Choice

Review LaterAdd Note

Review Later

The main advantage of the payback rule is that it

A) adjusts for uncertainty of early cash flows.
B) is simple to use.
C) does not discount cash flows.
D) better accounts for salvage costs at the end of a project.

Correct Answer

verified

Show Answer

Question 43

Multiple Choice

Review LaterAdd Note

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

The survey of CFOs indicates that the IRR method is used for evaluating investment projects by approximately

Which of the following methods of evaluating capital investment projects incorporates the time value of money concept?

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

A project's "book value" represents, essentially, the market valuation of the project.

The IRR rule states that firms should accept any project offering an internal rate of return in excess of the cost of capital.

Accounting earnings from a firm's income statement, prepared according to generally accepted accounting principles (GAAP), are typically the best data source for calculating a project's NPV.

Dry-Sand Company is considering investing in a new project.The project will need an initial investment of $1,200,000 and will generate $600,000 (after-tax) cash flows for three years.However, at the end of the fourth year, the project will generate -$500,000 of after-tax cash flow due to dismantling costs.Calculate the MIRR (modified internal rate of return) for the project if the cost of capital is 15 percent.

Briefly explain the term hard rationing.

The following table gives the available projects (in $millions) for a firm. $\begin{array} { r r r r r r r l } \underline { \mathrm { A } } & \underline { \mathrm { B } } & \underline { \mathrm { C } } & \underline { \mathrm { D } } & \underline { \mathrm { E } } & \underline { \mathrm { F } } & \underline { \mathrm { G } } & \\90 & 20 & 60 & 50 & 150 & 40 & 20 & \text { Initial investment } \\140 & 70 & 65 & - 10 & 30 & 32 & 10 & \mathrm { NPV }\end{array}$ If the firm has a limit of $210 million to invest, what is the maximum NPV the company can obtain?

If the cash flows for project A are C₀ = -1,000; C₁ = +600; C₂ = +400; and C₃ = +1,500, calculate the payback period.

The profitability index is always less than 1.