Business Finance Chapter 8

accepted

A project should be __________ if its NPV is greater than zero.

independent

A(n) ______ project does not rely on the acceptance or rejection of another project.

mutually exclusive

If a firm is evaluating two possible projects, both of which require the use of the same production facilities, and taking one project means that we cannot take the other, these projects would be considered _______________.

Net Present Value (NPV)

In capital budgeting, ______ determines the dollar value of a project to the company.

required return

Internal rate of return (IRR) must be compared to the ________ in order to determine the acceptability of a project.

Which of the following are reasons why IRR continues to be used in practice?

It is easier to communicate information about a proposal with an IRR. The IRR of a proposal can be calculated without knowing the appropriate discount rate. Businesspeople prefer to talk about rates of return.

not considered in the analysis

One of the flaws of the payback period method is that cash flows after the cutoff date are ___.

zero

The IRR is the discount rate that makes NPV equal to ______.

payback

The ______ method evaluates a project by determining the time needed to recoup the initial investment.

payback period; NPV

The __________ is best suited for decisions on relatively small, minor projects while ______ is more appropriate for large complex projects.

a project's cash flows

The internal rate of return is a function of ____.

future

The profitability index is calculated by dividing the PV of the _________ cash inflows by the initial investment.

True

True or false: A project with non-conventional cash flows will produce two or more IRRs.

false

True or false: The payback period takes into consideration the time value of money.

the discount

When calculating NPV, the present value of the nth cash flow is found by dividing the nth cash flow by 1 plus ______ rate raised to the nth power.

The Discounting Approach The Combination Approach The Reinvestment Approach

Which of the following are methods of calculating the MIRR of a project?

requires an arbitrary

Which of the following is a disadvantage of the payback period rule?

mutually exclusive projects; non conventional cash flows

Which of the following present problems when using the IRR method?

Net Present Value (NPV)

is a measure of how much value is created or added by undertaking an investment.