FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 9: Net Present Value and Other Investment Criteria

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 51

Multiple Choice

Review LaterAdd Note

Review Later

Which one of the following statements related to the internal rate of return (IRR) is correct? 

A) The IRR yields the same accept and reject decisions as the net present value method given mutually exclusive projects. 
B) A project with an IRR equal to the required return would reduce the value of a firm if accepted. 
C) The IRR is equal to the required return when the net present value is equal to zero. 
D) Financing type projects should be accepted if the IRR exceeds the required return. 
E) The average accounting return is a better method of analysis than the IRR from a financial point of view. 

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

Correct Answer

verified

Show Answer

Question 52

Multiple Choice

Review LaterAdd Note

Review Later

A project has average net income of $6,250 a year over its 6-year life. The initial cost of the project is $98,400 which will be depreciated using straight-line depreciation to a book value of zero over the life of the project. The firm set a minimum average accounting return of 12.5 percent. The firm should ________ the project because the AAR is ________ percent.

A) accept; 12.52
B) accept; 12.46
C) accept; 12.70
D) reject; 12.46
E) reject; 12.70

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

Correct Answer

verified

Show Answer

Question 53

Multiple Choice

Review LaterAdd Note

A strength of the average accounting return (AAR) method of project analysis is the fact that AAR: 

The profitability index is most closely related to which one of the following? 

Two mutually exclusive projects have an initial cost of $47,500 each. Project A produces cash inflows of $25,300, $37,100, and $22,000 for Years 1 through 3, respectively. Project B produces cash inflows of $43,600, $19,800 and $10,400 for Years 1 through 3, respectively. The required rate of return is 14.7 percent for Project A and 14.9 percent for Project B. Which project(s) should be accepted and why?

The Square Box is considering two independent projects with an initial cost of $18,000 each. The cash inflows of Project A are $3,000, $7,000, and $10,000 for Years 1 to 3, respectively. The cash inflows for Project B are $3,000, $7,000, and $15,000 for Years 1 to 3, respectively. The required return is 12 percent and the required discounted payback period is 3 years. Based on discounted payback, which project(s) , if either, should be accepted?

Home & More is considering a project with cash flows of-$368,000, $133,500,-$35,600, $244,700, and $258,000 for Years 0 to 4, respectively. Should this project be accepted based on the combination approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 14.6 percent? Why or why not?

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

A project has projected cash flows of −$148,500, $32,800, $64,200, −$7,500 and $87,300 for Years 0 to 4, respectively. Should this project be accepted based on the combination approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 10.5 percent? Why or why not?

Samuelson Electronics has a required payback period of three years for all of its projects. Currently, the firm is analyzing two independent projects. Project A has an expected payback period of 2.9 years and a net present value of $4,200. Project B has an expected payback period of 3.1 years with a net present value of $26,400. Which project(s) should be accepted based on the payback decision rule? 

Assume a project is independent with financing cash flows. Which one of these statements is correct? 

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

Assume a project has cash flows of -$54,300, $18,200, $37,300, and $14,300 for Years 0 to 3, respectively. What is the profitability index given a required return of 12.6 percent?

An investment that provides annual cash flows of $20,100 for 8 years costs $87,500 today. At what rate would you be indifferent between accepting the investment and rejecting it?

The average accounting rate of return (AAR) : 

Scott is considering a project that will produce cash inflows of $2,900 a year for 3 years. The required rate of return is 15.4 percent and the initial cost is $6,800. What is the discounted payback period?

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

A firm evaluates all of its projects by applying the IRR rule. The current proposed project has cash flows of -$37,048, $16,850, $15,700, and $19,300 for Years 0 to 3, respectively. The required return is 18 percent. What is the project IRR? Should the project be accepted or rejected?

Crystal Industries is considering an expansion project with cash flows of −$287,500, $107,500, $196,100, $104,500, and −$92,700 for Years 0 through 4. Should the firm proceed with the expansion based on the discounting approach to the modified internal rate of return if the discount rate is 13.4 percent? Why or why not?

Which one of the following is the best example of two mutually exclusive projects?