FIN 310 Chapter 8

Discount rate which results in a zero net present value for the project

Which one of the following defines the internal rate of return for a project? Discount rate that creates a zero cash flow from assets Discount rate which results in a zero net present value for the project Discount rate which results in a net present value equal to the project's initial cost Rate of return required by the project's investors The project's current market rate of return

Positive net present value

Which one of the following indicates that a project is expected to create value for its owners? Profitability index less than 1.0 Payback period greater than the requirement Positive net present value Positive average accounting rate of return Internal rate of return that is less than the requirement

Net Present Valve

Which one of the following is generally considered to be the best form of analysis if you have to select a single method to analyze a variety of investment opportunities? Payback Profitability index Accounting rate of return Internal rate of return Net present value

Average Accounting Return (AAP)

Which one of the following methods of analysis ignores cash flows? Profitability index Net present value Average accounting return Modified internal rate of return Internal rate of return

Average Accounting Return (AAP)

Which one of the following methods of analysis is most similar to computing the return on assets (ROA)? Internal rate of return Profitability index Average accounting return Net present value Payback

The payback method is biased towards short-term projects.

Which one of the following statements is correct? Selected Answer: The internal rate of return is the most reliable method of analysis for any type of investment decision. The payback method is biased towards short-term projects. The modified internal rate of return is most useful when projects are mutually exclusive. The average accounting return is the most difficult method of analysis to compute. The net present value method is only applicable if a project has conventional cash flows.

Common Stock

Which one of the following types of securities has no priority in a bankruptcy proceeding?

19.21%

You're trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $19.4 million, which will be depreciated straight-line to zero over its four-year life. Required: If the plant has projected net income of $1,855,000, $2,179,374, $2,074,000, and $1,346,000 over these four years, what is the project's average accounting return (AAR)? (Do not include the percent sign (%).Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

invested

he profitability index reflects the value created per dollar: invested. of sales. of net income. of taxable income. of shareholders' equity.

At a required return of 10 percent, what is the NPV of the project? $4,097.56 At a required return of 26 percent, what is the NPV of the project? -1,885.86 At what discount rate would you be indifferent between accepting the project and rejecting it? 19.32

A project that provides annual cash flows of $2,500 for nine years costs $10,300 today. Requirement 1: At a required return of 10 percent, what is the NPV of the project? [x] Requirement 2: At a required return of 26 percent, what is the NPV of the project? [z] Requirement 3: At what discount rate would you be indifferent between accepting the project and rejecting it?[y]