Net Present Value And Other Investment Criteria

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Questions Bank

Introduction to Corporate Finance
Financial Statements,Taxes,and Cash Flow
Working With Financial Statements
Long-Term Financial Planning and Growth
Introduction to Valuation: The Time Value of Money
Discounted Cash Flow Valuation
Interest Rates and Bond Valuation
Stock Valuation
Net Present Value and Other Investment Criteria
Making Capital Investment Decisions
Project Analysis and Evaluation
Some Lessons From Capital Market History
Return,Risk,and the Security Market Line
Cost of Capital
Raising Capital
Financial Leverage and Capital Structure Policy
Dividends and Payout Policy
Short-Term Finance and Planning
Cash and Liquidity Management
Credit and Inventory Management
International Corporate Finance
Behavioral Finance: Implications for Financial Management
Enterprise Risk Management
Options and Corporate Finance
Option Valuation
Mergers and Acquisitions
Leasing

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Question 1

Free

Multiple Choice

A project has an initial cost of $27,400 and a market value of $32,600.What is the difference between these two values called?

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net present value

internal return

payback value

profitability index

discounted payback

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Question 2

Free

Multiple Choice

Which one of the following methods of project analysis is defined as computing the value of a project based upon the present value of the project's anticipated cash flows?

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constant dividend growth model

discounted cash flow valuation

average accounting return

expected earnings model

internal rate of return

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Question 3

Free

Multiple Choice

The length of time a firm must wait to recoup the money it has invested in a project is called the:

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internal return period.

payback period.

profitability period.

discounted cash period.

valuation period.

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Question 4

Free

Multiple Choice

The length of time a firm must wait to recoup,in present value terms,the money it has in invested in a project is referred to as the:

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net present value period.

internal return period.

payback period.

discounted profitability period.

discounted payback period.

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Question 5

Free

Multiple Choice

A project's average net income divided by its average book value is referred to as the project's average:

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net present value.

internal rate of return.

accounting return.

profitability index.

payback period.

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Question 6

Multiple Choice

The internal rate of return is defined as the:

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maximum rate of return a firm expects to earn on a project.

rate of return a project will generate if the project in financed solely with internal funds.

discount rate that equates the net cash inflows of a project to zero.

discount rate which causes the net present value of a project to equal zero.

discount rate that causes the profitability index for a project to equal zero.

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Question 7

Multiple Choice

You are viewing a graph that plots the NPVs of a project to various discount rates that could be applied to the project's cash flows.What is the name given to this graph?

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project tract

projected risk profile

NPV profile

NPV route

present value sequence

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Question 8

Multiple Choice

There are two distinct discount rates at which a particular project will have a zero net present value.In this situation,the project is said to:

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have two net present value profiles.

have operational ambiguity.

create a mutually exclusive investment decision.

produce multiple economies of scale.

have multiple rates of return.

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Question 9

Multiple Choice

If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery.These projects are considered to be:

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independent.

interdependent.

mutually exclusive.

economically scaled.

operationally distinct.

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Question 10

Multiple Choice

The present value of an investment's future cash flows divided by the initial cost of the investment is called the:

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net present value.

internal rate of return.

average accounting return.

profitability index.

profile period.

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Question 11

Multiple Choice

A project has a net present value of zero.Which one of the following best describes this project?

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The project has a zero percent rate of return.

The project requires no initial cash investment.

The project has no cash flows.

The summation of all of the project's cash flows is zero.

The project's cash inflows equal its cash outflows in current dollar terms.

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Question 12

Multiple Choice

Which one of the following will decrease the net present value of a project?

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increasing the value of each of the project's discounted cash inflows

moving each of the cash inflows forward to a sooner time period

decreasing the required discount rate

increasing the project's initial cost at time zero

increasing the amount of the final cash inflow

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Question 13

Multiple Choice

Which one of the following methods determines the amount of the change a proposed project will have on the value of a firm?

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net present value

discounted payback

internal rate of return

profitability index

payback

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Question 14

Multiple Choice

If a project has a net present value equal to zero,then:

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the total of the cash inflows must equal the initial cost of the project.

the project earns a return exactly equal to the discount rate.

a decrease in the project's initial cost will cause the project to have a negative NPV.

any delay in receiving the projected cash inflows will cause the project to have a positive NPV.

the project's PI must be also be equal to zero.

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Question 15

Multiple Choice

Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets.When the project ends,those assets are expected to have an aftertax salvage value of $45,000.How is the $45,000 salvage value handled when computing the net present value of the project?

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reduction in the cash outflow at time zero

cash inflow in the final year of the project

cash inflow for the year following the final year of the project

cash inflow prorated over the life of the project

not included in the net present value

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Question 16

Multiple Choice

Which one of the following increases the net present value of a project?

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an increase in the required rate of return

an increase in the initial capital requirement

a deferment of some cash inflows until a later year

an increase in the aftertax salvage value of the fixed assets

a reduction in the final cash inflow

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Question 17

Multiple Choice

Net present value:

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is the best method of analyzing mutually exclusive projects.

is less useful than the internal rate of return when comparing different sized projects.

is the easiest method of evaluation for non-financial managers to use.

is less useful than the profitability index when comparing mutually exclusive projects.

is very similar in its methodology to the average accounting return.

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Question 18

Multiple Choice

Which one of the following is a project acceptance indicator given an independent project with investing type cash flows?

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profitability index less than 1.0

project's internal rate of return less than the required return

discounted payback period greater than requirement

average accounting return that is less than the internal rate of return

modified internal rate of return that exceeds the required return

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Question 19

Multiple Choice

Why is payback often used as the sole method of analyzing a proposed small project?

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Payback considers the time value of money.

All relevant cash flows are included in the payback analysis.

It is the only method where the benefits of the analysis outweigh the costs of that analysis.

Payback is the most desirable of the various financial methods of analysis.

Payback is focused on the long-term impact of a project.

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Question 20

Multiple Choice

Which of the following are advantages of the payback method of project analysis?
I)works well for research and development projects
II)liquidity bias
III)ease of use
IV)arbitrary cutoff point

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I and II only

I and III only

II and III only

II and IV only

II, III, and IV only

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Net Present Value And Other Investment Criteria

A project has an initial cost of $27,400 and a market value of $32,600.What is the difference between these two values called?

Which one of the following methods of project analysis is defined as computing the value of a project based upon the present value of the project's anticipated cash flows?

The length of time a firm must wait to recoup the money it has invested in a project is called the:

The length of time a firm must wait to recoup,in present value terms,the money it has in invested in a project is referred to as the:

A project's average net income divided by its average book value is referred to as the project's average:

The internal rate of return is defined as the:

You are viewing a graph that plots the NPVs of a project to various discount rates that could be applied to the project's cash flows.What is the name given to this graph?

There are two distinct discount rates at which a particular project will have a zero net present value.In this situation,the project is said to:

If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery.These projects are considered to be:

The present value of an investment's future cash flows divided by the initial cost of the investment is called the:

A project has a net present value of zero.Which one of the following best describes this project?

Which one of the following will decrease the net present value of a project?

Which one of the following methods determines the amount of the change a proposed project will have on the value of a firm?

If a project has a net present value equal to zero,then:

Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets.When the project ends,those assets are expected to have an aftertax salvage value of $45,000.How is the $45,000 salvage value handled when computing the net present value of the project?

Which one of the following increases the net present value of a project?

Net present value:

Which one of the following is a project acceptance indicator given an independent project with investing type cash flows?

Why is payback often used as the sole method of analyzing a proposed small project?

Which of the following are advantages of the payback method of project analysis?I)works well for research and development projectsII)liquidity biasIII)ease of useIV)arbitrary cutoff point

Which of the following are advantages of the payback method of project analysis?
I)works well for research and development projects
II)liquidity bias
III)ease of use
IV)arbitrary cutoff point