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Exam 5: Net Present Value and Other Investment Rules

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Question 51

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A mutually exclusive project is a project whose:

A) acceptance or rejection has no effect on the acceptance of other projects.
B) NPV is always negative.
C) IRR is always negative.
D) acceptance or rejection affects the acceptance of other projects.
E) cash flow pattern exhibits more than one sign change.

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Question 52

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A project costing $218,000 has equal annual cash inflows over its 7-year life.If the discounted payback period is seven years and the discount rate is zero percent,what is the amount of the cash flow in each of the seven years?

A) $31,142.86 per year for each of the seven years
B) $0 for Years 1 to 6 and $218,000 in Year 7
C) Any amount between $0 and $218,000 for any one year,provided the sum of the seven cash flows totals $218,000.
D) $218,000 for Year 1 and $0 for Years 2 through 7.
E) $0 for each of the seven years

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Question 53

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Comparing the NPV profile of an investment project to that of a financing project demonstrates why the:

The payback method:

A situation in which accepting one investment prevents the acceptance of another investment is called the:

No matter how many forms of investment analysis you employ:

If a firm is more concerned about the quick return of its initial investment than it is about the amount of value created,then the firm is most apt to evaluate a capital project using the ________ method of analysis.

The length of time required for a project's discounted cash flows to equal the initial cost of the project is called the:

The modified internal rate of return:

You are considering a project with an initial cost of $4,300.What is the payback period for this project if the cash inflows are $550,$970,$2,600,and $500 a year for Years 1 to 4,respectively?

All else equal,the payback period for a project will decrease whenever the:

Down Under Stores is considering an investment with an initial cost of $236,000.In Year 4,the project will require an additional investment and finally,the project will be shut down in Year 7.The annual cash flows for Years 1 to 7,respectively,are projected as $64,000,$87,000,$91,000,−$48,000,$122,000,$154,000,and −$30,000.If all negative cash flows are moved to Time 0 using a discount rate of 13 percent,what is the project's modified IRR?

Payback is frequently used to analyze independent projects because:

An investment project has an initial cost of $260 and cash flows $75,$105,$100,and $50 for Years 1 to 4,respectively.The cost of capital is 12 percent.What is the discounted payback period?

Why do managers suggest that ignoring all cash flows following the required payback period is not a major flaw of the payback method of capital budgeting analysis?

The discount rate that makes the net present value of an investment exactly equal to zero is called the:

A project will have more than one IRR if,and only if,the:

If you want to review a project from a benefit-cost perspective,you should use the ________ method of analysis.