Exam 9: Capital Budgeting Techniques

Which of the following statements is true of the modified internal rate of return?

If a project's net benefit computed on a present value basis-that is, NPV-is positive, then:

The multiple internal rate of return (MIRR) is a better indicator of a project's true profitability because:

An insurance firm agrees to pay you $3,310 at the end of 20 years if you pay a premium of $100 per year at the end of each of the 20 years. Find the internal rate of return to the nearest whole percentage point.

Project A has a cost of $1,000, and it will produce end-of-year net cash inflows of $500 per year for 3 years. The project's required rate of return is 10 percent. What is the difference between the project's IRR and its MIRR? (Round off the answer to two decimal places.)

Modified internal rate of return is the discount rate that forces the present value of the terminal value to be equal to _____.

Seattle Inc. identifies an investment opportunity, which will yield cash flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in Year 10. The initial cash outflow is $150,000, and the firm's required rate of return is 10 percent. Assume cash flows occur evenly during the year, 1/365th each day. What is the payback period for this investment? (Round off the answer to two decimal places.)

Which of the following statements is true of various methods for capital budgeting?

The reinvestment rate assumption that the cash flows from a project can be reinvested at the internal rate of return, is made in the _____.

The primary function of the capital budget is to forecast _____.

Using the discounted payback method, a project should be accepted when the discounted payback is greater than the project's expected life.

In capital budgeting analyses, it is possible that for a particular project, the NPV method and the IRR method both involve the reinvestment of the project's cash flows at the same rate.

The post-audit is a simple process in which actual results are compared with forecasted results and any discrepancy must have resulted from the changes in factors that are completely under management's control.

Which of the following statements is true of a project whose cash flows accrue relatively rapidly?

Which of the following statements is true of a capital budgeting project with negative net present value (NPV)?

Which of the following statements is true of the payback period method of capital budgeting?

Which of the following statements is true of a project with a positive net present value (NPV)?

Which of the following statements is true of the internal rate of return?

A project should be accepted if _____.

If a capital budgeting project is purchased, a firm's value, and thus its stockholders' wealth, will increase by the amount of the project's _____.