Ch 9 Fin 301
The internal rate of return is a function of ____. a)a project's opportunity costs b)the market interest rate c)the cost of debt incurred by a project d)a project's cash flows
a projects cash flows
In which of the following scenarios would IRR always recommend the wrong decision? a)Starting cash flow: 1000 Ending cash flow: -2000 b)Starting cash flow: -100,000 Ending cash flow: 110,000 c)Starting cash flow: -100 Ending cash flow: +200
a)Starting cash flow: 1000 Ending cash flow: -2000
Select all that apply If a project has multiple internal rates of return, which of the following methods should be used? a)MIRR b)NPV c)IRR
a,b
Select all that apply The basic NPV investment rule is: Multiple select question. a) accept a project if the NPV is greater than zero. b) reject a project if its NPV is less than zero. c) accept a project if the discount rate is above zero. d) if the NPV is equal to zero, acceptance or rejection of the project is a matter of indifference e) accept a project if the NPV is less than zero.a
a,b,d
A project should be __________ if its NPV is greater than zero. a) accepted b) rejected c) delayed
accepted
Select all that Apply The three attributes of NPV are that it: a) doesn't rely on a discount rate. b) uses all the cash flows of a project. c) discounts the cash flows properly. c) uses cash flows.
b) uses all the cash flows of a project. c) discounts the cash flows properly. c) uses cash flows.
In capital budgeting, the net ______ determines the value of a project to the company. a) future values b) present values c) sales d) income
present value
In capital budgeting, the net ______ determines the value of a project to the company. a)income b)sales c)present value d)future value
present value
If the IRR is greater than the _______ ________, we should accept the project. a) payback period b) required return c) inflation rate d) tax rate
required return
Internal rate of return (IRR) must be compared to the ________ in order to determine the acceptability of a project. a)required return b)federal funds rate c)inflation rate
required return
The point at which the NPV profile crosses the vertical axis is the: a)cost of the project in the first year b)internal rate of return c)required rate of return d)sum of the cash flows of the project
sum of the cash flows of the project
True or false: IRR approach may lead to incorrect decisions in comparison of two mutually exclusive projects.
true
True or false: Some projects, such as mines, have cash outflows followed by cash inflows, which are then followed by cash outflows, giving the project multiple rates of return.
true
Capital Corp is considering a project whose internal rate of return is 14%. If Capital's required return is 14%, the project's NPV is: a) positive b) negative c) zero
zero
Capital Corp is considering a project whose internal rate of return is 14%. If Capital's required return is 14%, the project's NPV is: a)positive b)zero c)negative
zero
Net _________ value is a measure of how much value is created or added today by undertaking an investment.
Present
__________ budgeting is the decision-making process for accepting and rejecting projects.
Capital
True or false: Some projects, such as mines, have cash outflows followed by cash inflows, which are then followed by cash outflows, giving the project multiple rates of return. a)True b)False
True
True or false: The crossover rate is the rate at which the NPVs of two projects are equal.
True
Select all that apply The IRR rule can lead to bad decisions when _____ or _____. a)payback period is less than two years. b)projects are mutually exclusive c)cash flows are not conventional d)NPV is positive
b)projects are mutually exclusive c)cash flows are not conventional
Select all that apply Which of the following are mutually exclusive investments? a)A restaurant or a gas station on opposite corners. b)A restaurant or a gas station on the same piece of land. c)Two different choices for the assembly lines that will make the same product. d)Two computer systems - one for the administrative office and one for the security cameras.
b,c
Select all that apply Which of the following are mutually exclusive investments? a)A restaurant or a gas station on opposite corners. b)Two different choices for the assembly lines that will make the same product. c)A restaurant or a gas station on the same piece of land. d)Two computer systems - one for the administrative office and one for the security cameras.
b,c
Capital ____ is the decision-making process for accepting and rejecting projects. a) structure b) relevance c) budgeting d) spending
budgeting
Capital ______ is the decision-making process for accepting and rejecting projects. a)spending b)structure c)budgeting d)relevance
budgeting
The ________rate is the rate at which the NPVs of two projects are equal.
crossover
NPV ______ cash flows properly. a) discounts b) compounds
discounts
A situation in which taking one investment prevents the taking of another is called a mutually __________investment decision.
exclusive
True or false: The MIRR function eliminates multiple IRRs and should replace NPV.
false
The IRR can lead to the wrong decision when cash (inflows/outflows) occur before cash (inflows/outflows).
inflows,outflows
The point at which the NPV profile crosses the horizontal axis is the: a)sum of the cash flows of the project b)cost of the project in the first year c)internal rate of return d)required rate of return
internal rate of return
With nonconventional cash flows, there is a possibility that more than one discount rate will make the NPV of an investment zero. This is called the _____________ rates of return problem.
multiple
The IRR rule can lead to bad decisions when cash flows are _____ or projects are mutually exclusive. a)conventional b)not conventional c)certain
not conventional
For a project with conventional cash flows, the NPV is ______ if the required return is less than the IRR, and it is ______ if the required return is greater than the IRR. a) positive, negative b) negative, negative c) positive, positive d) negative, positive
positive, negative
