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Kristi wants to start training her most junior assistant, Amy, in the art of project analysis.Amy has just started college and has no experience or background in business finance.To get her started, Kristi is going to assign the responsibility for all projects that have initial costs less than $1,000 to Amy to analyze.Which method is Kristi most apt to ask Amy to use in making her initial decisions?


A) discounted payback
B) profitability index
C) internal rate of return
D) payback
E) average accounting return

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

Correct Answer

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Why is payback often used as the sole method of analyzing a proposed small project?


A) Payback considers the time value of money.
B) All relevant cash flows are included in the payback analysis.
C) It is the only method where the benefits of the analysis outweigh the costs of that analysis.
D) Payback is the most desirable of the various financial methods of analysis.
E) Payback is focused on the long-term impact of a project.

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

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An investment project costs $21,500 and has annual cash flows of $6,500 for 6 years.If the discount rate is 15 percent, what is the discounted payback period?


A) 4.41 years
B) 4.91 years
C) 5.12 years
D) 5.40 years
E) never

F) C) and D)
G) D) and E)

Correct Answer

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Roger's Meat Market is considering two independent projects.The profitability index decision rule indicates that both projects should be accepted.This result most likely does which one of the following?


A) conflicts with the results of the net present value decision rule
B) assumes the firm has sufficient funds to undertake both projects
C) agrees with the decision that would also apply if the projects were mutually exclusive
D) bases the accept/reject decision on the same variables as the average accounting return
E) fails to provide useful information as the firm must reject at least one of the projects

F) A) and D)
G) None of the above

Correct Answer

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Isaac has analyzed two mutually exclusive projects of similar size and has compiled the following information based on his analysis.Both projects have 3- year lives. Isaac has analyzed two mutually exclusive projects of similar size and has compiled the following information based on his analysis.Both projects have 3- year lives. Isaac has been asked for his best recommendation given this information.His recommendation should be to accept: A) both projects. B) project B because it has the shortest payback period. C) project B and reject project A based on their net present values. D) project A and reject project B based on their average accounting returns. E) neither project. Isaac has been asked for his best recommendation given this information.His recommendation should be to accept:


A) both projects.
B) project B because it has the shortest payback period.
C) project B and reject project A based on their net present values.
D) project A and reject project B based on their average accounting returns.
E) neither project.

F) All of the above
G) C) and E)

Correct Answer

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The Green Fiddle is considering a project that will produce sales of $87,000 a year for the next 4 years.The profit margin is estimated at 6 percent.The project will cost $90,000 and will be depreciated straight-line to a book value of zero over the life of the project.The firm has a required accounting return of 11 percent.This project should be _____ because the AAR is _____ percent.


A) rejected; 10.03
B) rejected; 10.25
C) rejected; 11.60
D) accepted; 10.25
E) accepted; 11.60

F) B) and C)
G) None of the above

Correct Answer

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Which two methods of project analysis were the most widely used by CEO's as of 1999?


A) net present value and payback
B) internal rate of return and payback
C) net present value and average accounting return
D) internal rate of return and net present value
E) payback and average accounting return

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

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What is the net present value of a project with the following cash flows if the required rate of return is 9 percent? What is the net present value of a project with the following cash flows if the required rate of return is 9 percent? A) -$1,574.41 B) -$1,208.19 C) $5,904.65 D) $6,029.09 E) $6,311.16


A) -$1,574.41
B) -$1,208.19
C) $5,904.65
D) $6,029.09
E) $6,311.16

F) None of the above
G) D) and E)

Correct Answer

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The final decision on which one of two mutually exclusive projects to accept ultimately depends upon which one of the following?


A) initial cost of each project
B) timing of the cash inflows
C) total cash inflows of each project
D) required rate of return
E) length of each project's life

F) B) and E)
G) C) and D)

Correct Answer

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The length of time a firm must wait to recoup, in present value terms, the money it has in invested in a project is referred to as the:


A) net present value period.
B) internal return period.
C) payback period.
D) discounted profitability period.
E) discounted payback period.

F) A) and C)
G) A) and D)

Correct Answer

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You are considering the following two mutually exclusive projects.Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project.Neither project has any salvage value. You are considering the following two mutually exclusive projects.Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project.Neither project has any salvage value. Should you accept or reject these projects based on IRR analysis? A) accept Project A and reject Project B B) reject Project A and accept Project B C) accept both Projects A and B D) reject both Projects A and B E) You cannot make this decision based on internal rate of return analysis. Should you accept or reject these projects based on IRR analysis?


A) accept Project A and reject Project B
B) reject Project A and accept Project B
C) accept both Projects A and B
D) reject both Projects A and B
E) You cannot make this decision based on internal rate of return analysis.

F) B) and D)
G) None of the above

Correct Answer

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Blue Water Systems is analyzing a project with the following cash flows.Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 14 percent? Why or why not? Blue Water Systems is analyzing a project with the following cash flows.Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 14 percent? Why or why not? A) Yes; The MIRR is 13.48 percent. B) Yes; The MIRR is 17.85 percent. C) Yes; The MIRR is 21.23 percent. D) No; The MIRR is 5.73 percent. E) No; The MIRR is 17.85 percent.


A) Yes; The MIRR is 13.48 percent.
B) Yes; The MIRR is 17.85 percent.
C) Yes; The MIRR is 21.23 percent.
D) No; The MIRR is 5.73 percent.
E) No; The MIRR is 17.85 percent.

F) B) and D)
G) All of the above

Correct Answer

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