Question 1

A decision rule and associated methodology for converting the NPV statistic into a rate-based metric is referred to as:

Accepted Answer

A)  NPV. 
B)  profitability index. 
C)  MIRR. 
D)  discounted payback. 
A)  NPV. 
B)  profitability index. 
C)  MIRR. 
D)  discounted payback.

Question 2

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 12 percent,and that the maximum allowable payback and discounted payback statistic for the project are two and two and a half years,respectively.   Use the PI decision rule to evaluate this project; should it be accepted or rejected?

Accepted Answer

A)  −1.21 percent, reject 
B)  1.08 percent, accept 
C)  1.21 percent, accept 
D)  121 percent, accept 
A)  −1.21 percent, reject 
B)  1.08 percent, accept 
C)  1.21 percent, accept 
D)  121 percent, accept

Question 3

The MIRR statistic is different from the IRR statistic in that:

Accepted Answer

A)  the MIRR assumes that the cash inflows can be reinvested at the cost of capital. 
B)  the MIRR assumes that the cash inflows can be reinvested at the IRR. 
C)  the MIRR uses weighted-average dollars. 
D)  the MIRR uses input from the NPV whereas the IRR does not. 
A)  the MIRR assumes that the cash inflows can be reinvested at the cost of capital. 
B)  the MIRR assumes that the cash inflows can be reinvested at the IRR. 
C)  the MIRR uses weighted-average dollars. 
D)  the MIRR uses input from the NPV whereas the IRR does not.

Question 4

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?

Accepted Answer

A)  Discounted payback 
B)  Net present value 
C)  Internal rate of return 
D)  Profitability index 
A)  Discounted payback 
B)  Net present value 
C)  Internal rate of return 
D)  Profitability index

Question 5

Which of the following is incorrect regarding the IRR statistic?

Accepted Answer

A)  For independent projects, IRR will give the same accept/reject decision as NPV. 
B)  For the IRR statistic to give a different accept/reject decision from NPV, the cash flows must be non-normal and the projects must be mutually exclusive. 
C)  To solve for the IRR, one can simply solve the NPV formula for the rate that will make the NPV equal to zero. 
D)  None of the statements are incorrect. 
A)  For independent projects, IRR will give the same accept/reject decision as NPV. 
B)  For the IRR statistic to give a different accept/reject decision from NPV, the cash flows must be non-normal and the projects must be mutually exclusive. 
C)  To solve for the IRR, one can simply solve the NPV formula for the rate that will make the NPV equal to zero. 
D)  None of the statements are incorrect.

Question 6

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

Accepted Answer

A)  Dependent 
B)  Independent 
C)  Mutually exclusive 
D)  Mutually dependent 
A)  Dependent 
B)  Independent 
C)  Mutually exclusive 
D)  Mutually dependent

Question 7

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

Accepted Answer

A)  $2,013.18 
B)  $175.66 
C)  $486.29 
D)  $9,824.34 
A)  $2,013.18 
B)  $175.66 
C)  $486.29 
D)  $9,824.34

Question 8

Suppose your firm is considering two independent projects with the cash flows shown as follows.The required rate of return on projects of both of their risk class is 12 percent,and the maximum allowable payback and discounted payback statistic for the projects are two and a half and three years,respectively.   Use the MIRR decision rule to evaluate these projects; which one(s)should be accepted or rejected?

Accepted Answer

A)  Accept both A and B 
B)  Accept neither A nor B 
C)  Accept A, reject B 
D)  Reject A, accept B 
A)  Accept both A and B 
B)  Accept neither A nor B 
C)  Accept A, reject B 
D)  Reject A, accept B

Question 9

Compute the NPV statistic for Project X given the following cash flows if the appropriate cost of capital is 10 percent. Project X

Accepted Answer

A)  $183,507.96 
B)  $247,410.67 
C)  $248,962.50 
D)  $262,622.77 
A)  $183,507.96 
B)  $247,410.67 
C)  $248,962.50 
D)  $262,622.77

Question 10

Compute the NPV statistic for Project Y given the following cash flows if the appropriate cost of capital is 10 percent. Project Y

Accepted Answer

A)  $894.37 
B)  $993.97 
C)  $964.72 
D)  $1,008.03 
A)  $894.37 
B)  $993.97 
C)  $964.72 
D)  $1,008.03

Question 11

Compute the PI statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent.

Accepted Answer

A)  10 percent, reject 
B)  14.22 percent, accept 
C)  13.26 percent, accept 
D)  18.96 percent, accept 
A)  10 percent, reject 
B)  14.22 percent, accept 
C)  13.26 percent, accept 
D)  18.96 percent, accept

Question 12

A financial asset will pay you $50,000 at the end of 20 years if you pay premiums of $975 per year at the end of each year for 20 years.What is the IRR of this financial asset?

Accepted Answer

A)  8.64 percent 
B)  9.02 percent 
C)  10.51 percent 
D)  11.29 percent 
A)  8.64 percent 
B)  9.02 percent 
C)  10.51 percent 
D)  11.29 percent

Question 13

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 8 percent,and that the maximum allowable payback and discounted payback statistic for the project are three and three and a half years,respectively.   Use the NPV decision rule to evaluate this project; should it be accepted or rejected?

Accepted Answer

A)  $35,995.86, reject 
B)  $38,875.53, accept 
C)  $138,875.53, accept 
D)  $238,875.53, accept 
A)  $35,995.86, reject 
B)  $38,875.53, accept 
C)  $138,875.53, accept 
D)  $238,875.53, accept

Question 14

All capital budgeting techniques:

Accepted Answer

A)  render the same investment decision. 
B)  use the same measurement units. 
C)  include all crucial information. 
D)  exclude some crucial information. 
A)  render the same investment decision. 
B)  use the same measurement units. 
C)  include all crucial information. 
D)  exclude some crucial information.

Question 15

All of the following capital budgeting tools are suitable for firms facing time constraints EXCEPT:

Accepted Answer

A)  NPV. 
B)  payback. 
C)  discounted payback. 
D)  All of the options are suitable for firms facing time constraints. 
A)  NPV. 
B)  payback. 
C)  discounted payback. 
D)  All of the options are suitable for firms facing time constraints.

Question 16

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 8 percent,and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years,respectively.Use the PI decision to evaluate this project; should it be accepted or rejected?

Accepted Answer

A)  PI = 6.94 percent; reject the project 
B)  PI = 7.52 percent; reject the project 
C)  PI = 23.61 percent; accept the project 
D)  PI = 35.33 percent; accept the project 
A)  PI = 6.94 percent; reject the project 
B)  PI = 7.52 percent; reject the project 
C)  PI = 23.61 percent; accept the project 
D)  PI = 35.33 percent; accept the project

Question 17

Under what conditions can a rate-based statistic yield a different accept/reject decision than NPV?

Accepted Answer

A)  Independent projects that are evaluated at a high cost of capital. 
B)  Mutually exclusive projects that are evaluated at a low cost of capital. 
C)  Any projects that exhibit differences in scale or timing. 
D)  Mutually exclusive projects that exhibit differences in scale or timing. 
A)  Independent projects that are evaluated at a high cost of capital. 
B)  Mutually exclusive projects that are evaluated at a low cost of capital. 
C)  Any projects that exhibit differences in scale or timing. 
D)  Mutually exclusive projects that exhibit differences in scale or timing.

Question 18

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 8 percent,and that the maximum allowable payback and discounted payback statistic for the project are three and three and a half years,respectively.   Use the IRR decision rule to evaluate this project; should it be accepted or rejected?

Accepted Answer

A)  −4.95 percent, reject 
B)  4.95 percent, accept 
C)  −23.18 percent, reject 
D)  23.18 percent, accept 
A)  −4.95 percent, reject 
B)  4.95 percent, accept 
C)  −23.18 percent, reject 
D)  23.18 percent, accept

Question 19

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

Accepted Answer

A)  time value of money. 
B)  market rates of return. 
C)  cash flows that occur after payback. 
D)  cash flows that occur during payback. 
A)  time value of money. 
B)  market rates of return. 
C)  cash flows that occur after payback. 
D)  cash flows that occur during payback.

Question 20

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 is referred to as:

Accepted Answer

A)  PI. 
B)  IRR. 
C)  NPV. 
D)  MIRR. 
A)  PI. 
B)  IRR. 
C)  NPV. 
D)  MIRR.

A decision rule and associated methodology for converting the NPV statistic into a rate-based metric is referred to as:

The MIRR statistic is different from the IRR statistic in that:

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?

Which of the following is incorrect regarding the IRR statistic?

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

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

Compute the NPV statistic for Project X given the following cash flows if the appropriate cost of capital is 10 percent. Project X

Compute the NPV statistic for Project Y given the following cash flows if the appropriate cost of capital is 10 percent. Project Y

Compute the PI statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent.

A financial asset will pay you $50,000 at the end of 20 years if you pay premiums of $975 per year at the end of each year for 20 years.What is the IRR of this financial asset?

All capital budgeting techniques:

All of the following capital budgeting tools are suitable for firms facing time constraints EXCEPT:

Under what conditions can a rate-based statistic yield a different accept/reject decision than NPV?

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

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 is referred to as:

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Working Capital Management and Policies

Filters

Exam 13: Weighing Net Present Value and Other Capital Budgeting Criteria

A decision rule and associated methodology for converting the NPV statistic into a rate-based metric is referred to as:

The MIRR statistic is different from the IRR statistic in that:

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?

Which of the following is incorrect regarding the IRR statistic?

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

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

Compute the NPV statistic for Project X given the following cash flows if the appropriate cost of capital is 10 percent. Project X

Compute the NPV statistic for Project Y given the following cash flows if the appropriate cost of capital is 10 percent. Project Y

Compute the PI statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent.

A financial asset will pay you $50,000 at the end of 20 years if you pay premiums of $975 per year at the end of each year for 20 years.What is the IRR of this financial asset?

All capital budgeting techniques:

All of the following capital budgeting tools are suitable for firms facing time constraints EXCEPT:

Under what conditions can a rate-based statistic yield a different accept/reject decision than NPV?

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

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 is referred to as:

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Working Capital Management and Policies

Filters