Exam 8: Investment Decision Rules

A delivery service is buying 600 tires for its fleet of vehicles. One supplier offers to supply the tires for $80 per tire, payable in one year. Another supplier will supply the tires for $20,000 down today, then $45 per tire, payable in one year. What is the difference in PV between the first and the second offer, assuming interest rates are 8.1%?

Use the information for the question(s) below. -If WiseGuy Inc. uses IRR rule to choose projects, which of the projects (Project A or Project B) Project B

Consider the following two projects: The profitability index for project B is closest to ________.

Martin is offered an investment where for $6000 today, he will receive $6180 in one year. He decides to borrow $6000 from the bank to make this investment. What is the maximum interest rate the bank needs to offer on the loan if Martin is at least to break even on this investment?

Use the table for the question(s) below. Consider the following list of projects: -Assuming that your capital is constrained, which project should you invest in last?

Most corporations measure the value of a project in terms of which of the following?

An orcharder spends $110,000 to plant pomegranate bushes. It will take four years for the bushes to provide a usable crop. He estimates that every year for 20 years after that he will receive a crop worth $10,500 per year. If the discount rate is 9%, what is the net present value (NPV) of this investment?

Use the information for the question(s) below. -If WiseGuy Inc. uses payback period rule to choose projects, which of the projects (Project A or Project B) Project B

Consider a project with the following cash flows: Assume the appropriate discount rate for this project is 14%. The profitability index for this project is closest to ________.

The following show four mutually exclusive investments. Which one is the best investment?

Which of the following best describes the Net Present Value rule?

Use the table for the question(s) below. Consider the following list of projects: -Assuming that your capital is constrained, what is the fifth project that you should invest in?

Consider the following two projects: The payback period for project A is closest to ________.

What is the decision criterion while using the payback rule?

Which of the following decision rules might best be used as a supplement to net present value (NPV) by a firm that favors liquidity?

A lawn maintenance company compares two ride-on mowers-the Excelsior, which has an expected working-life of six years, and the Grassassinator, which has a working life of four years. After examining the equivalent annual annuities of each mower, the company decides to purchase the Excelsior. Which of the following, if true, would be most likely to make them change that decision?

Consider a project with the following cash flows: If the appropriate discount rate for this project is 13%, then the net present value (NPV) is closest to ________.

Use the information for the question(s) below. Your firm is preparing to open a new retail strip mall and you have multiple businesses that would like lease space in it. Each business will pay a fixed amount of rent each month plus a percentage of the gross sales generated each month. The cash flows from each of the businesses has approximately the same amount of risk. The business names, square footage requirements, and monthly expected cash flows for each of the businesses that would like to lease space in your strip mall are provided below: -If your new strip mall will have 15,000 square feet of retail space available to be leased, to which businesses should you lease and why?

The present value (PV) of an investment is ________.

A bakery is deciding whether to buy an extra van to help deliver its products. The van will cost $28,000, but is expected to increase profits by $6,500 per year over the five years of its working life. Which of the following is the correct net present value (NPV) profile for this purchase?