Weighing Net Present Value And Other Capital Budgeting Criteria

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Question 1

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Multiple Choice

Of the capital budgeting techniques discussed, which works equally well with normal and non-normal cash flows and with independent and mutually exclusive projects?

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Payback period

Discounted payback period

Modified internal rate of return

Net present value

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Question 2

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Multiple Choice

The net present value decision technique uses a statistic denominated in:

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years.

currency.

a percentage.

time lines.

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Question 3

Free

Multiple Choice

The net present value decision technique may not be the only pertinent unit of measure if the firm is facing:

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time or resource constraints.

a labor union.

the election of a new board of directors.

a major investment.

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Question 4

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Multiple Choice

All capital budgeting techniques:

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render the same investment decision.

use the same measurement units.

include all crucial information.

exclude some crucial information.

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Question 5

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Multiple Choice

Rate-based statistics represent summary cash flows, and these summaries tend to lose which two important details?

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The investment size and cash inflows that occur after the rather arbitrary testing period

The investment size and the cash inflows that occur before the testing period

The investment size and the cash outflows that occur before the testing period

The investment size and the cash inflows that occur during the testing period

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Question 6

Multiple Choice

Which of the following is a technique for evaluating capital projects that tells how long it will take a firm to earn back the money invested in a project?

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Payback

Internal rate of return

Net present value

Profitability index

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Question 7

Multiple Choice

Which of the following is a technique for evaluating capital projects that tells how long it will take a firm to earn back the money invested in a project plus interest at market rates?

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Payback

Discounted payback

Net present value

Profitability index

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Question 8

Multiple Choice

Which of the following is a technique for evaluating capital projects that is particularly useful when firms face time constraints in repaying investors?

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Payback

Internal rate of return

Net present value

Profitability index

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Question 9

Multiple Choice

Neither payback period nor discounted payback period techniques for evaluating capital projects account for:

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time value of money.

market rates of return.

cash flows that occur after payback.

cash flows that occur during payback.

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Question 10

Multiple Choice

When choosing between two mutually exclusive projects using the payback period method for evaluating capital projects, one would choose:

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either project if they both are more than managers' maximum payback period.

neither project if they both are less than managers' maximum payback period.

the project that pays back the soonest.

the project that pays back the soonest if it is equal to or less than managers' maximum payback period.

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Question 11

Multiple Choice

Which rate-based decision statistic measures the excess return (the amount above and beyond the cost of capital for a project), rather than the gross return?

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Internal rate of return (IRR)

Modified internal rate of return (MIRR)

Profitability index (PI)

Net present value (NPV)

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Question 12

Multiple Choice

The benchmark for the profitability index (PI) is the:

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cost of capital.

managers' maximum number of years.

zero or anything larger than zero.

zero or anything less than zero.

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Question 13

Multiple Choice

Which of these describe groups or pairs of projects where you can accept one but not all?

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Dependent

Independent

Mutually exclusive

Mutually dependent

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Question 14

Multiple Choice

Which of these are sets of cash flows where all the initial cash flows are negative and all the subsequent ones are either zero or positive?

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Expected cash flows

Time line cash flows

Non-normal cash flows

Normal cash flows

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Question 15

Multiple Choice

Which of these is a capital budgeting technique that generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flows?

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Discounted payback

Net present value

Internal rate of return

Profitability index

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Question 16

Multiple Choice

Which of these is a capital budgeting technique that generates decision rules and associated metrics for choosing projects based upon the implicit expected geometric average of a project's rate of return?

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Discounted payback

Net present value

Internal rate of return

Profitability index

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Question 17

Multiple Choice

Which of the following is a capital budgeting technique that converts a project's cash flows using a more consistent reinvestment rate prior to applying the Internal Rate of Return, IRR, decision rule?

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Discounted payback

Net present value

Modified internal rate of return

Profitability index

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Question 18

Multiple Choice

A graph of a project's ________ is a function of cost of capital.

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internal rate of return

net present value

modified internal rate of return

all choices are a function of cost of capital

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Question 19

Multiple Choice

Compute the NPV for Project X and accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. Time:

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$12.93

$14.22

$62.07

$136.90

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Question 20

Multiple Choice

Compute the NPV for Project X with the cash flows shown as follows if the appropriate cost of capital is 9 percent.

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$639.96

$360.04

$392.44

$486.29

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