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What is the net present value of a project with the following cash flows if the required rate of return is 12 percent? What is the net present value of a project with the following cash flows if the required rate of return is 12 percent? A) -$1,574.41 B) -$1,208.19 C) -$842.12 D) $729.09 E) $1,311.16


A) -$1,574.41
B) -$1,208.19
C) -$842.12
D) $729.09
E) $1,311.16

F) B) and C)
G) All of the above

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Kristi wants to start training her most junior assistant, Amy, in the art of project analysis. Amy has just started college and has no experience or background in business finance. To get her started, Kristi is going to assign the responsibility for all projects that have initial costs less than $1,000 to Amy to analyze. Which method is Kristi most apt to ask Amy to use in making her initial decisions?


A) discounted payback
B) profitability index
C) internal rate of return
D) payback
E) average accounting return

F) B) and D)
G) B) and C)

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Explain how the internal rate of return (IRR) decision rule is applied to projects with financing type cash flows.

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For financing type projects, the decisio...

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Rosa's Designer Gowns creates exquisite gowns for special occasions on a prepaid basis only. The required return is 8 percent. Rosa has estimated the cash flows for one gown as follows. Should Rosa sell this gown at the price she is currently considering based on the estimated internal rate of return (IRR) ? Rosa's Designer Gowns creates exquisite gowns for special occasions on a prepaid basis only. The required return is 8 percent. Rosa has estimated the cash flows for one gown as follows. Should Rosa sell this gown at the price she is currently considering based on the estimated internal rate of return (IRR) ? A) Rosa should sell the gown for $155,000. B) Rose can sell the gown for as little as $153,819 and still earn her required return. C) The gown must be sold for a minimum price of $175,926 if Rosa is to earn her required return. D) The IRR decision rule cannot be applied to this project. E) Insufficient information is provided to make a decision based on IRR.


A) Rosa should sell the gown for $155,000.
B) Rose can sell the gown for as little as $153,819 and still earn her required return.
C) The gown must be sold for a minimum price of $175,926 if Rosa is to earn her required return.
D) The IRR decision rule cannot be applied to this project.
E) Insufficient information is provided to make a decision based on IRR.

F) A) and E)
G) B) and D)

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Day Interiors is considering a project with the following cash flows. What is the IRR of this project? Day Interiors is considering a project with the following cash flows. What is the IRR of this project? A) 6.42 percent B) 7.03 percent C) 7.48 percent D) 8.22 percent E) 8.56 percent


A) 6.42 percent
B) 7.03 percent
C) 7.48 percent
D) 8.22 percent
E) 8.56 percent

F) A) and E)
G) C) and E)

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You would like to invest in the following project. You would like to invest in the following project. Sis, your boss, insists that only projects returning at least $1.06 in today's dollars for every $1 invested can be accepted. She also insists on applying a 14 percent discount rate to all cash flows. Based on these criteria, you should: A) accept the project because the PI is 0.90. B) accept the project because the PI is 1.04. C) accept the project because the PI is 1.11. D) reject the project because the PI is 0.90. E) reject the project because the PI is 0.96. Sis, your boss, insists that only projects returning at least $1.06 in today's dollars for every $1 invested can be accepted. She also insists on applying a 14 percent discount rate to all cash flows. Based on these criteria, you should:


A) accept the project because the PI is 0.90.
B) accept the project because the PI is 1.04.
C) accept the project because the PI is 1.11.
D) reject the project because the PI is 0.90.
E) reject the project because the PI is 0.96.

F) A) and C)
G) C) and D)

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


A) increasing the value of each of the project's discounted cash inflows
B) moving each of the cash inflows back to a later time period
C) decreasing the required discount rate
D) increasing the project's initial cost at time zero
E) increasing the amount of the final cash inflow

F) A) and B)
G) A) and C)

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


A) Payback considers the time value of money.
B) All relevant cash flows are included in the payback analysis.
C) It is the only method where the benefits of the analysis outweigh the costs of that analysis.
D) Payback is the most desirable of the various financial methods of analysis.
E) Payback is focused on the long-term impact of a project.

F) B) and C)
G) All of the above

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In actual practice, managers frequently use the: I. average accounting return method because the information is so readily available. II. internal rate of return because the results are easy to communicate and understand. III. discounted payback because of its simplicity. IV. net present value because it is considered by many to be the best method of analysis.


A) I and III only
B) II and III only
C) I, II, and IV only
D) II, III, and IV only
E) I, II, III, and IV

F) A) and E)
G) None of the above

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Western Beef Exporters is considering a project that has an NPV of $32,600, an IRR of 15.1 percent, and a payback period of 3.2 years. The required return is 14.5 percent and the required payback period is 3.0 years. Which one of the following statements correctly applies to this project?


A) The net present value indicates accept while the internal rate of return indicates reject.
B) Payback indicates acceptance.
C) The payback decision rule could override the accept decision indicated by the net present value.
D) The payback rule will automatically be ignored since both the net present value and the internal rate of return indicate an accept decision.
E) The net present value decision rule is the only rule that matters when making the final decision.

F) A) and C)
G) B) and D)

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Tedder Mining has analyzed a proposed expansion project and determined that the internal rate of return is lower than the firm desires. Which one of the following changes to the project would be most expected to increase the project's internal rate of return?


A) decreasing the required discount rate
B) increasing the initial investment in fixed assets
C) condensing the firm's cash inflows into fewer years without lowering the total amount of those inflows
D) eliminating the salvage value
E) decreasing the amount of the final cash inflow

F) A) and B)
G) A) and C)

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You are considering a project with conventional cash flows and the following characteristics: You are considering a project with conventional cash flows and the following characteristics: Which of the following statements is correct given this information? I. The discount rate used in computing the net present value was less than 11.63 percent. II. The discounted payback period must be less than 2.98 years. III. The discount rate used in the computation of the profitability ratio was 11.63 percent. IV. This project should be accepted as the internal rate of return exceeds the required return. A) I and II only B) III and IV only C) I, II, and IV only D) II, III, and IV only E) I, II, III, and IV Which of the following statements is correct given this information? I. The discount rate used in computing the net present value was less than 11.63 percent. II. The discounted payback period must be less than 2.98 years. III. The discount rate used in the computation of the profitability ratio was 11.63 percent. IV. This project should be accepted as the internal rate of return exceeds the required return.


A) I and II only
B) III and IV only
C) I, II, and IV only
D) II, III, and IV only
E) I, II, III, and IV

F) A) and B)
G) B) and E)

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What is the net present value of a project that has an initial cash outflow of $34,900 and the following cash inflows? The required return is 15.35 percent. What is the net present value of a project that has an initial cash outflow of $34,900 and the following cash inflows? The required return is 15.35 percent. A) -$3,383.25 B) -$2,784.62 C) -$2,481.53 D) $52,311.08 E) $66,416.75


A) -$3,383.25
B) -$2,784.62
C) -$2,481.53
D) $52,311.08
E) $66,416.75

F) A) and B)
G) B) and D)

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Douglass Interiors is considering two mutually exclusive projects and have determined that the crossover rate for these projects is 11.7 percent. Project A has an internal rate of return (IRR) of 15.3 percent and Project B has an IRR of 16.5 percent. Given this information, which one of the following statements is correct?


A) Project A should be accepted as its IRR is closer to the crossover point than is Project B's IRR.
B) Project B should be accepted as it has the higher IRR.
C) Both projects should be accepted as both of the project's IRRs exceed the crossover rate.
D) Neither project should be accepted since both of the project's IRRs exceed the crossover rate.
E) You cannot determine which project should be accepted given the information provided.

F) A) and E)
G) None of the above

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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?


A) project tract
B) projected risk profile
C) NPV profile
D) NPV route
E) present value sequence

F) B) and E)
G) A) and B)

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Roger's Meat Market is considering two independent projects. The profitability index decision rule indicates that both projects should be accepted. This result most likely does which one of the following?


A) conflicts with the results of the net present value decision rule
B) assumes the firm has sufficient funds to undertake both projects
C) agrees with the decision that would also apply if the projects were mutually exclusive
D) bases the accept/reject decision on the same variables as the average accounting return
E) fails to provide useful information as the firm must reject at least one of the projects

F) B) and C)
G) A) and B)

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A project has an initial cost of $6,500. The cash inflows are $900, $2,200, $3,600, and $4,100 over the next four years, respectively. What is the payback period?


A) 1.73 years
B) 2.51 years
C) 2.94 years
D) 3.51 years
E) 3.94 years

F) A) and E)
G) B) and C)

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The internal rate of return:


A) may produce multiple rates of return when cash flows are conventional.
B) is best used when comparing mutually exclusive projects.
C) is rarely used in the business world today.
D) is principally used to evaluate small dollar projects.
E) is easy to understand.

F) A) and B)
G) B) and C)

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Which one of the following is an advantage of the average accounting return method of analysis?


A) easy availability of information needed for the computation
B) inclusion of time value of money considerations
C) the use of a cutoff rate as a benchmark
D) the use of pre-tax income in the computation
E) use of real, versus nominal, average income

F) B) and C)
G) A) and E)

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The internal rate of return is defined as the:


A) maximum rate of return a firm expects to earn on a project.
B) rate of return a project will generate if the project in financed solely with internal funds.
C) discount rate that equates the net cash inflows of a project to zero.
D) discount rate which causes the net present value of a project to equal zero.
E) discount rate that causes the profitability index for a project to equal zero.

F) B) and D)
G) B) and C)

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