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What is the net present value of the following set of cash flows at a discount rate of 7 percent? At 20 percent? What is the net present value of the following set of cash flows at a discount rate of 7 percent? At 20 percent? A) $4,518.47; $628.30 B) $4,518.47; -$321.76 C) $4,518.47; -$525.13 D) $4,722.09; $504.21 E) $4,722.09; -$418.05


A) $4,518.47; $628.30
B) $4,518.47; -$321.76
C) $4,518.47; -$525.13
D) $4,722.09; $504.21
E) $4,722.09; -$418.05

F) A) and E)
G) D) and E)

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An investment has an initial cost of $410,000 and will generate the net income amounts shown below. This investment will be depreciated straight line to zero over the 4-year life of the project. Should this project be accepted based on the average accounting rate of return if the required rate is 16 percent? Why or why not? An investment has an initial cost of $410,000 and will generate the net income amounts shown below. This investment will be depreciated straight line to zero over the 4-year life of the project. Should this project be accepted based on the average accounting rate of return if the required rate is 16 percent? Why or why not? A) Yes; because the AAR is equal to 16 percent B) Yes; because the AAR is greater than 16 percent C) Yes; because the AAR is less than 16 percent D) No; because the AAR is greater than 16 percent E) No; because the AAR is less than 16 percent


A) Yes; because the AAR is equal to 16 percent
B) Yes; because the AAR is greater than 16 percent
C) Yes; because the AAR is less than 16 percent
D) No; because the AAR is greater than 16 percent
E) No; because the AAR is less than 16 percent

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

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Miller and Sons is evaluating a project with the following cash flows: Miller and Sons is evaluating a project with the following cash flows: The company uses a 10 percent interest rate on all of its projects. What is the MIRR of the project using the reinvestment approach? The discounting approach? The combination approach? A) 8.46 percent; 7.29 percent; 8.59 percent B) 8.46 percent; 7.38 percent; 8.61 percent C) 8.54 percent; 7.29 percent; 8.61 percent D) 8.54 percent; 7.38 percent; 8.59 percent E) 8.54 percent; 8.23 percent; 8.61 percent The company uses a 10 percent interest rate on all of its projects. What is the MIRR of the project using the reinvestment approach? The discounting approach? The combination approach?


A) 8.46 percent; 7.29 percent; 8.59 percent
B) 8.46 percent; 7.38 percent; 8.61 percent
C) 8.54 percent; 7.29 percent; 8.61 percent
D) 8.54 percent; 7.38 percent; 8.59 percent
E) 8.54 percent; 8.23 percent; 8.61 percent

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

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Based on the most recent survey information presented in your textbook, CFOs tend to use which two methods of investment analysis the most frequently?


A) Payback and net present value
B) Payback and internal rate of return
C) Internal rate of return and net present value
D) Net present value and profitability index
E) Profitability index and internal rate of return

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

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A project has the following cash flows. What is the payback period? A project has the following cash flows. What is the payback period? A) 2.48 years B) 2.59 years C) 2.96 years D) 3.21 years E) 3.43 years


A) 2.48 years
B) 2.59 years
C) 2.96 years
D) 3.21 years
E) 3.43 years

F) A) and D)
G) A) and E)

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A project has the following cash flows. What is the internal rate of return? A project has the following cash flows. What is the internal rate of return? A) 9.75 percent B) 10.28 percent C) 10.60 percent D) 10.67 percent E) 11.23 percent


A) 9.75 percent
B) 10.28 percent
C) 10.60 percent
D) 10.67 percent
E) 11.23 percent

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

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You were recently hired by a firm as a project analyst. The owner of the firm is unfamiliar with financial analysis and only wants to know what the expected dollar return is per dollar spent on a given project. Which financial method of analysis will provide the information that the owner requests?


A) Internal rate of return
B) Modified internal rate of return
C) Net present value
D) Profitability index
E) Payback

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

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Which one of the following statements is correct?


A) The internal rate of return is the most reliable method of analysis for any type of investment decision.
B) The payback method is biased towards short-term projects.
C) The modified internal rate of return is most useful when projects are mutually exclusive.
D) The average accounting return is the most difficult method of analysis to compute.
E) The net present value method is only applicable if a project has conventional cash flows.

F) A) and E)
G) A) and D)

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A project has the following cash flows. What is the payback period? A project has the following cash flows. What is the payback period? A) 2.38 years B) 2.49 years C) 2.60 years D) 3.01 years E) 3.33 years


A) 2.38 years
B) 2.49 years
C) 2.60 years
D) 3.01 years
E) 3.33 years

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

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You are considering an equipment purchase costing $177,000. This equipment will be depreciated straight line to zero over its 3-year life. What is the average accounting return if this equipment produces the following net income? You are considering an equipment purchase costing $177,000. This equipment will be depreciated straight line to zero over its 3-year life. What is the average accounting return if this equipment produces the following net income? A) 12.29 percent B) 14.38 percent C) 16.56 percent D) 17.44 percent E) 21.00 percent


A) 12.29 percent
B) 14.38 percent
C) 16.56 percent
D) 17.44 percent
E) 21.00 percent

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

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The Black Horse is currently considering a project that will produce cash inflows of $12,000 a year for three years followed by $6,500 in year four. The cost of the project is $38,000. What is the profitability index if the discount rate is 7 percent?


A) 0.96
B) 0.99
C) 1.04
D) 1.09
E) 1.12

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

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If an investment is producing a return that is equal to the required return, the investment's net present value will be:


A) positive.
B) greater than the project's initial investment.
C) zero.
D) equal to the project's net profit.
E) less than, or equal to, zero.

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

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What is the payback period for a project with the following cash flows? What is the payback period for a project with the following cash flows? A) 2.56 years B) 2.89 years C) 3.17 years D) 3.74 years E) never


A) 2.56 years
B) 2.89 years
C) 3.17 years
D) 3.74 years
E) never

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

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Explain why the net present value is considered to be the best method of analyzing an investment.

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The net present value consider...

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The Tool Box needs to purchase a new machine costing $1.46 million. Management is estimating the machine will generate cash inflows of $223,000 the first year and $600,000 for the following three years. If management requires a minimum 12 percent rate of return, should the firm purchase this particular machine? Why or why not?


A) Yes; because the IRR is 10.75 percent
B) Yes; because the IRR is 12.74 percent
C) No; because the IRR is 10.75 percent
D) No; because the IRR is 12.74 percent
E) The answer cannot be determined as there are multiple IRRs.

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

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The net present value of an investment represents the difference between the investment's:


A) cash inflows and outflows.
B) cost and its net profit.
C) cost and its market value.
D) cash flows and its profits.
E) assets and liabilities.

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

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The profitability index reflects the value created per dollar:


A) invested.
B) of sales.
C) of net income.
D) of taxable income.
E) of shareholders' equity.

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

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Which one of the following defines the internal rate of return for a project?


A) Discount rate that creates a zero cash flow from assets
B) Discount rate which results in a zero net present value for the project
C) Discount rate which results in a net present value equal to the project's initial cost
D) Rate of return required by the project's investors
E) The project's current market rate of return

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

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Which one of the following indicates that a project is expected to create value for its owners?


A) Profitability index less than 1.0
B) Payback period greater than the requirement
C) Positive net present value
D) Positive average accounting rate of return
E) Internal rate of return that is less than the requirement

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

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You are considering the following two mutually exclusive projects. What is the crossover point? You are considering the following two mutually exclusive projects. What is the crossover point? A) 10.76 B) 13.72 C) 15.89 D) 18.79 E) 22.56


A) 10.76
B) 13.72
C) 15.89
D) 18.79
E) 22.56

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

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