Question

11. |
The discount rate that makes the net present value of an investment exactly equal to zero is the: |

A) |
Payback period. |

B) |
Internal rate of return. |

C) |
Average accounting return. |

D) |
Profitability index. |

E) |
Discounted payback period. |

12. |
The internal rate of return (IRR) rule can be best stated as: |

A) |
An investment is acceptable if its IRR is exactly equal to its net present value (NPV). |

B) |
An investment is acceptable if its IRR is exactly equal to zero. |

C) |
An investment is acceptable if its IRR is less than the required return, else it should be rejected. |

D) |
An investment is acceptable if its IRR is higher than the required return by 2 percentage points, else it should be rejected. |

- None of the above

13. |
A situation in which taking one investment prevents the taking of another is called: |

A) |
Net present value profiling. |

B) |
Operational ambiguity. |

C) |
Mutually exclusive investment decisions. |

D) |
Issues of scale. |

E) |
Multiple rates of return. |

14. |
The _______ decision rule is considered the "best" in principle. |

A) |
internal rate of return |

B) |
payback period |

C) |
average accounting return |

D) |
net present value |

E) |
profitability index |

15. |
Project selection ambiguity can arise if one relies on IRR instead of NPV when: |

A) |
The first cash flow is negative and the remaining cash flows are positive. |

B) |
Projects are independent of one another. |

C) |
A project has more than one NPV. |

D) |
The profitability index is greater than one. |

E) |
Project cash flows are not conventional. |

Answer #1

11.B)Internal rate of return

IRR is the rate at which NPV = 0

Payback period is the time period in which initial investment is recovered

Average Accounting return = Net Profit/Average investment

12.E. None of the above

The correct rule is

Investment should be accepted if IRR is higher than the required rate of return, else rejected

13.C)

Mutually exclusive investment decisions. |

Mutually exclusive investments are those out of which only one can be accepted

14.D)

net present value |

NPV is considered as they are drawbacks of other methods

15.E) Project cash flows are not conventional.

IRR results are not accurate in that case as there is more than one IRR

Project A has a net present value of $1,500, a payback period of
2 years, and an internal rate of return of 12%. Project
B has a net present value of $1,800, a payback period of 4 years,
and an internal rate of return of 10%. Project C has a
netpresent value of $1,750, a payback period of 3 years, and an
internal rate of return of 11%. If the projects are
mutually exclusive, which project should be undertaken?
A.
Project A because...

Choose the most accurate statement regarding the net present
value of an investment or
a financing project:
A) A financing project should be accepted if, and only if, the
NPV is exactly equal to zero.
B) An investment project should be accepted only if the NPV is
equal to the initial cash
flow.
C)Any type of project should be accepted if the NPV is positive
and rejected if it is negative
D) An investment project that has positive cash flows...

An investment costs $200,000. If the present value (PV) of all
the future cash flows is $175,000, which of the following
statements is correct?
a.
The project should be rejected since the Profitability Index is
less than 1.
b.
The project should be rejected since the NPV is $25,000.
c.
The project should be accepted since the Profitability Index is
greater than 0
d.
The project should be rejected since the NPV is -$175,000.

Which of the following statement is incorrect? Select one:
a. When the internal rate of return is less than this required
rate of return, the project is rejected.
b. When NPV equals zero, the required rate of return, or
discount rate used in the NPV calculation, is greater than the
projected rate of return, IRR.
c. Most of the answers are correct.
d. The number of time periods it takes to cover the initial
investment is called the payback period....

The profitability index of a proposed investment project will
be:
equal to 1.0 if the net present value is positive.
negative if the proposed investment meets the cost of capital
target.
less than 1.0 if the net present value is negative.
greater than 1.0 if the cost of capital exceeds the internal
rate of return.

The net present value (NPV) and internal rate of return (IRR)
methods of investment analysis are interrelated and are sometimes
used together to make capital budgeting decisions.
Consider the case of Blue Hamster Manufacturing Inc.:
Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of
its planning and financial data when both its main and its backup
servers crashed. The company’s CFO remembers that the internal rate
of return (IRR) of Project Delta is 11.3%, but he can’t recall how...

The net present value (NPV) and internal rate of return (IRR)
methods of investment analysis are interrelated and are sometimes
used together to make capital budgeting decisions.
Consider the case of Blue Hamster Manufacturing Inc.:
Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of
its planning and financial data when both its main and its backup
servers crashed. The company’s CFO remembers that the internal rate
of return (IRR) of Project Delta is 11.3%, but he can’t recall how...

The net present value (NPV) and internal rate of return (IRR)
methods of investment analysis are interrelated and are sometimes
used together to make capital budgeting decisions.
Consider the case of Blue Hamster Manufacturing Inc.:
Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of
its planning and financial data when both its main and its backup
servers crashed. The company’s CFO remembers that the internal rate
of return (IRR) of Project Delta is 11.3%, but he can’t recall how...

The net present value (NPV) and internal rate of return (IRR)
methods of investment analysis are interrelated and are sometimes
used together to make capital budgeting decisions.
Consider the case of Green Caterpillar Garden Supplies Inc.:
Last Tuesday, Green Caterpillar Garden Supplies Inc. lost a
portion of its planning and financial data when both its main and
its backup servers crashed. The company’s CFO remembers that the
internal rate of return (IRR) of Project Zeta is 14.6%, but he
can’t...

Which of the following statements is correct:
A. projects with unconventional cash flows have multiple
internal rates of return
B. if 2 projects are mutually exclusive, you should select the
project with the shortest payback period
C. If the IRR exceeds the required return, the profitability
index will be less than 1.0
D. the Profitability index will be greater than 1.0 when the net
present value is negative
E. when the internal rate of return is greater than the required...

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