Question 1

When a manager does not accept a positive NPV project,shareholders face an opportunity cost in the amount of the:

Accepted Answer

A)   project's initial cost.
B)   project's NPV.
C)   project's discounted cash flows.
D)  soft capital rationing budget.E) B) and C)
F) A) and D)

Question 2

Which of the following changes will increase the NPV of a project?

Accepted Answer

A)   A decrease in the discount rate
B)   A decrease in the size of the cash inflows
C)   An increase in the initial cost of the project
D)   A decrease in the number of cash inflowsE) B) and D)
F) A) and C)

Question 3

A risky dollar is worth more than a safe one.

Accepted Answer

A) True 
 B)False

Question 4

What is the equivalent annual cost for a project that requires a $40,000 investment at time-period zero,and a $10,000 annual expense during each of the next 4 years,if the opportunity cost of capital is 10%?

Accepted Answer

A)   $20,000.00
B)   $21,356.95
C)   $22,618.83
D)  $25,237.66E) A) and B)
F) A) and C)

Question 5

Which of the following statements is most likely correct for a project costing $50,000 and returning $14,000 per year for 5 years?

Accepted Answer

A)   NPV = $3,071.01.
B)   NPV = $20,000.
C)   IRR = 2.8%.
D)   IRR is greater than 10%.E) A) and D)
F) A) and C)

Question 6

Soft capital rationing is imposed upon a firm from _____ sources,while hard capital rationing is imposed from _____ sources.

Accepted Answer

A)   internal; external
B)   internal; internal
C)   external; internal
D)  external; externalE) B) and C)
F) C) and D)

Question 7

When managers cannot determine whether to invest now or wait until costs decrease later,the rule should be to:

Accepted Answer

A)   postpone until costs reach their lowest.
B)   invest now to maximize the NPV.
C)   postpone until the opportunity cost reaches its lowest.
D)  invest at the date that gives the highest NPV today.E) B) and D)
F) None of the above

Question 8

Because of deficiencies associated with the payback method,it is seldom used in corporate financial analysis today.

Accepted Answer

A) True 
 B)False

Question 9

The payback period considers all project cash flows.

Accepted Answer

A) True 
 B)False

Question 10

The use of a profitability index will always provide results consistent with selecting the project with the:

Accepted Answer

A)   highest NPV.
B)   highest IRR.
C)   largest dollar invested per rate of return.
D)  largest return per dollar investedE) B) and C)
F) A) and D)

Question 11

You can continue to use your less efficient machine at a cost of $8,000 annually for the next 5 years.Alternatively,you can purchase a more efficient machine for $12,000 plus $5,000 annual maintenance.At a cost of capital of 15%,you should:

Accepted Answer

A)   Buy the new machine and save $600 in equivalent annual costs.
B)   Buy the new machine and save $388 in equivalent annual costs.
C)   Keep the old machine and save $388 in equivalent annual costs.
D)  Keep the old machine and save $580 in equivalent annual costs.E) B) and C)
F) A) and B)

Question 12

How is the internal rate of return of a project calculated and what must you look out for when using the internal rate of return rule?

Accepted Answer

Instead of asking whether a project has ...

Question 13

A currently used machine costs $10,000 annually to run.What is the maximum that should be paid to replace the machine with one that will last 3 years and cost only $4,000 annually to run? The opportunity cost of capital is 12%.

Accepted Answer

A)   $2,000
B)   $9,607
C)   $14,411
D)  $24,018E) B) and C)
F) None of the above

Question 14

The reason why the IRR criterion can give conflicting signals with mutually exclusive projects is:

Accepted Answer

A)   the NPVs of these projects cross over at some discount rate.
B)   discounted cash flow is not considered with mutually exclusive projects.
C)   IRR performs better with accounting returns than with cash flows.
D)  mutually exclusive projects have multiple IRRsE) A) and B)
F) C) and D)

Exam 8: Net Present Value and Other Investment Criteria

You can continue to use your less efficient machine at a cost of $8,000 annually for the next 5 years.Alternatively,you can purchase a more efficient machine for $12,000 plus $5,000 annual maintenance.At a cost of capital of 15%,you should:

Correct Answer
verified

Soft capital rationing is imposed upon a firm from _ sources,while hard capital rationing is imposed from _ sources.

Correct Answer
verified

The use of a profitability index will always provide results consistent with selecting the project with the:

Correct Answer
verified

When managers cannot determine whether to invest now or wait until costs decrease later,the rule should be to:

Correct Answer
verified

A risky dollar is worth more than a safe one.

Correct Answer
verified

The reason why the IRR criterion can give conflicting signals with mutually exclusive projects is:

Correct Answer
verified

Because of deficiencies associated with the payback method,it is seldom used in corporate financial analysis today.

Correct Answer
verified

When a manager does not accept a positive NPV project,shareholders face an opportunity cost in the amount of the:

Correct Answer
verified

What is the equivalent annual cost for a project that requires a $40,000 investment at time-period zero,and a $10,000 annual expense during each of the next 4 years,if the opportunity cost of capital is 10%?

Correct Answer
verified

Which of the following changes will increase the NPV of a project?

Correct Answer
verified

Which of the following statements is most likely correct for a project costing $50,000 and returning $14,000 per year for 5 years?

Correct Answer
verified

How is the internal rate of return of a project calculated and what must you look out for when using the internal rate of return rule?

Correct Answer
verified
Instead of asking whether a project has ...
View Answer

A currently used machine costs $10,000 annually to run.What is the maximum that should be paid to replace the machine with one that will last 3 years and cost only $4,000 annually to run? The opportunity cost of capital is 12%.

Correct Answer
verified

The payback period considers all project cash flows.

Correct Answer
verified

Exam 8: Net Present Value and Other Investment Criteria

You can continue to use your less efficient machine at a cost of $8,000 annually for the next 5 years.Alternatively,you can purchase a more efficient machine for $12,000 plus $5,000 annual maintenance.At a cost of capital of 15%,you should:

Correct AnswerverifiedShow Answer

Soft capital rationing is imposed upon a firm from _____ sources,while hard capital rationing is imposed from _____ sources.

Correct AnswerverifiedShow Answer

The use of a profitability index will always provide results consistent with selecting the project with the:

Correct AnswerverifiedShow Answer

When managers cannot determine whether to invest now or wait until costs decrease later,the rule should be to:

Correct AnswerverifiedShow Answer

A risky dollar is worth more than a safe one.

Correct AnswerverifiedShow Answer

The reason why the IRR criterion can give conflicting signals with mutually exclusive projects is:

Correct AnswerverifiedShow Answer

Because of deficiencies associated with the payback method,it is seldom used in corporate financial analysis today.

Correct AnswerverifiedShow Answer

When a manager does not accept a positive NPV project,shareholders face an opportunity cost in the amount of the:

Correct AnswerverifiedShow Answer

What is the equivalent annual cost for a project that requires a $40,000 investment at time-period zero,and a $10,000 annual expense during each of the next 4 years,if the opportunity cost of capital is 10%?

Correct AnswerverifiedShow Answer

Which of the following changes will increase the NPV of a project?

Correct AnswerverifiedShow Answer

Which of the following statements is most likely correct for a project costing $50,000 and returning $14,000 per year for 5 years?

Correct AnswerverifiedShow Answer

How is the internal rate of return of a project calculated and what must you look out for when using the internal rate of return rule?

Correct AnswerverifiedInstead of asking whether a project has ...View AnswerShow Answer

A currently used machine costs $10,000 annually to run.What is the maximum that should be paid to replace the machine with one that will last 3 years and cost only $4,000 annually to run? The opportunity cost of capital is 12%.

Correct AnswerverifiedShow Answer

The payback period considers all project cash flows.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Soft capital rationing is imposed upon a firm from _ sources,while hard capital rationing is imposed from _ sources.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Instead of asking whether a project has ...
View Answer

Correct Answer
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Correct Answer
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