FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 8: Net Present Value and Other Investment Criteria

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

Multiple Choice

Review LaterAdd Note

Review Later

Which one of the following is generally considered to be the best form of analysis if you have to select a single method to analyze a variety of investment opportunities?

A) Payback
B) Profitability index
C) Accounting rate of return
D) Internal rate of return
E) Net present value

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

Correct Answer

verified

Show Answer

Question 22

Multiple Choice

Review LaterAdd Note

Review Later

The internal rate of return is unreliable as an indicator of whether or not an investment should be accepted given which one of the following?

A) One of the time periods within the investment period has a cash flow equal to zero.
B) The initial cash flow is negative.
C) The investment has cash inflows that occur after the required payback period.
D) The investment is mutually exclusive with another investment of a different size.
E) The cash flows are conventional.

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

Correct Answer

verified

Show Answer

Question 23

Multiple Choice

Review LaterAdd Note

What is the net present value of a project with the following cash flows if the discount rate is 13.6 percent? $\begin{array} { | c | r | } \hline \text { Year } & \text { Cash Flow } \\\hline 0 & - \$ 63,600 \\\hline 1 & 18,200 \\\hline 2 & 34,500 \\\hline 3 & 35,900 \\\hline\end{array}$

Empire Industries is considering adding a new product to its lineup.This product is expected to generate sales for four years after which time the product will be discontinued.What is the project's net present value at a required rate of return of 14.8 percent? $\begin{array} { | c | r | } \hline \text { Year } & \text { Cash Flow } \\\hline 0 & - \$ 62,000 \\\hline 1 & 16,500 \\\hline 2 & 23,800 \\\hline 3 & 27,100 \\\hline 4 & 23,300 \\\hline\end{array}$

Charles Henri is considering investing $37,800 in a project that is expected to provide him with cash inflows of $11,600 at the end of each of the first two years and $20,000 at the end of the third year.What is the project's NPV at a discount rate of 0 percent? At 5 percent? At 10 percent?

You are considering the following two mutually exclusive projects.The crossover point is _____ percent and Project _____ should be accepted at a discount rate of 9 percent. $\begin{array} { | r | r | r | } \hline \underline { \text { Year } } & \text { Project A } & \text { Project B } \\\hline 0 & - \$ 69,000 & - \$ 69,000 \\\hline 1 & 13,000 & 29,000 \\\hline 2 & 33,000 & 24,000 \\\hline 3 & 38,000 & 27,000 \\\hline\end{array}$

What is the net present value of the following cash flows if the relevant discount rate is 5.75 percent? $\begin{array} { | c | r | } \hline \text { Year } & \text { Cash Flow } \\\hline 0 & \$ 11,400 \\\hline 1 & - 2,500 \\\hline 2 & - 2,500 \\\hline 3 & - 9,500 \\\hline\end{array}$

What is the net present value of a project with the following cash flows if the discount rate is 15 percent? $\begin{array} { | c | r | } \hline \text { Year } & \text { Cash Flow } \\\hline 0 & - \$ 48,100 \\\hline 1 & 15,600 \\\hline 2 & 28,900 \\\hline 3 & 15,200 \\\hline\end{array}$

What is the payback period for a $16,700 investment with the following cash flows? $\begin{array} { | c | r | } \hline \text { Year } & \text { Cash Flow } \\\hline 1 & \$ 2,100 \\\hline 2 & 6,800 \\\hline 3 & 6,900 \\\hline 4 & 7,300 \\\hline 5 & 5,100 \\\hline\end{array}$

Joe and Rich are both considering investing in a project that costs $25,500 and is expected to produce cash inflows of $15,800 in Year 1 and $15,300 in Year 2.Joe has a required return of 8.5 percent but Rich demands a return of 12.5 percent.Who,if either,should accept this project?

The payback method of analysis ignores which one of the following?

Miller Brothers is considering a project that will produce cash inflows of $32,500,$38,470,$40,805,and $41,268 a year for the next four years,respectively.What is the internal rate of return if the initial cost of the project is $184,600?

Quattro,Inc.has the following mutually exclusive projects available.The company has historically used a four-year cutoff for projects.The required return is 11 percent. $\begin{array} { | r | r | r | } \hline \underline { \text { Year } } & \underline { \text { Cash Flow } } & \underline { \text { Cash } } \\ & \underline { ( A ) } & \underline { \text { Flow } ( \mathrm { B } ) } \\\hline 0 & - \$ 75,000 & - \$ 85,000 \\\hline 1 & 6,200 & 27,700 \\\hline 2 & 9,400 & 26,500 \\\hline 3 & 28,100 & 24,200 \\\hline 4 & 32,600 & 15,600 \\\hline\end{array}$ The payback for Project A is ____ while the payback for Project B is ____.The NPV for Project A is _____ while the NPV for Project B is ____.Which project,if any,should the company accept?

Woodcrafters requires an average accounting return (AAR) of at least 17.5 percent on all fixed asset purchases.Currently,it is considering some new equipment costing $169,700.This equipment will have a four-year life over which time it will be depreciated on a straight-line basis to a zero book value.The annual net income from this equipment is estimated at $7,100,$13,300,$18,600,and $19,200 for the four years.Should this purchase occur based on the accounting rate of return? Why or why not?

An investment has conventional cash flows and a profitability index of 1.0.Given this,which one of the following must be true?

You are considering the following two mutually exclusive projects.The crossover point is _____ and Project _____ should be accepted if the discount rate is 14 percent. $\begin{array} { | r | r | r | } \hline \text { Year } & \text { Project A } & \text { Project B } \\\hline 0 & - \$ 43,000 & - \$ 43,000 \\\hline 1 & 18,000 & 29,000 \\\hline 2 & 18,000 & 14,000 \\\hline 3 & 28,000 & 21,000 \\\hline\end{array}$

The Flour Baker is considering a project with the following cash flows.Should this project be accepted based on its internal rate of return if the required return is 18 percent? $\begin{array} { | c | r | } \hline \text { Year } & \text { Cash Flow } \\\hline 0 & - \$ 49,000 \\\hline 1 & 9,500 \\\hline 2 & 26,200 \\\hline 3 & 38,700 \\\hline\end{array}$

Which one of the following indicates that an independent project is definitely acceptable?

The Steel Factory is considering a project that will produce annual cash flows of $43,800,$40,200,$46,200,and $41,800 over the next four years,respectively.What is the internal rate of return if the initial cost of the project is $127,900?

Which one of the following will occur when the internal rate of return equals the required return?