Net Present Value And Other Investment Criteria

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Question 1

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As the opportunity cost of capital decreases,the net present value of a project increases.

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Question 2

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The IRR is the rate of return on the cash flows of the investment,also known as the opportunity cost of capital.

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Question 3

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Projects with an NPV of zero decrease shareholders' wealth by the cost of the project.

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Question 4

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When calculating IRR with a trial and error process,discount rates should usually be raised when NPV is positive.

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Question 5

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Unlike using IRR,selecting projects according to their NPV will always lead to a correct accept-reject decision.

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Question 6

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For mutually exclusive projects,the project with the higher IRR is the correct selection.

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Question 7

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When using a profitability index to select projects,a high value is preferred over a low value.

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Question 8

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A project's payback period is the length of time necessary to generate an NPV of zero.

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Question 9

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The payback period considers all project cash flows.

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Question 10

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Both the NPV and the internal rate of return methods recognize that the timing of cash flows affects project value.

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Question 11

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If a project has multiple IRRs,the lowest one is incorrect.

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Question 12

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

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Question 13

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A risky dollar is worth more than a safe one.

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Question 14

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When choosing among mutually exclusive projects with similar lives,the choice is easy using the NPV rule.As long as at least one project has positive NPV,simply choose the project with the highest NPV.

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Question 15

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When we compare assets with different lives,we should select the machine that has the lowest equivalent annual cost.

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Question 16

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For many firms the limits on capital funds are "soft." By this we mean that the capital rationing is not imposed by investors.

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Question 17

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Soft rationing should never cost the firm anything.

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Question 18

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For most managers,discounted cash-flow analysis is in fact the dominant tool for project evaluation.

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Question 19

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The payback rule states that a project is acceptable if you get your money back within a specified period.

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Question 20

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The payback rule always makes shareholders better off.

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