Finance Final Exam Quiz Questions

If a project has a net present value equal to zero, then:

the project earns a return exactly equal to the discount rate.

A company that utilizes the MACRS system of depreciation but does not use bonus depreciation:

will have a greater depreciation tax shield in Year 2 than in Year 1.

You are viewing a graph that plots the NPVs of a project to various discount rates that could be applied to the project's cash flows. What is the name given to this graph?

NPV profile

Which on of the following methods determines the amount of the change a proposed project will have on the value of a firm?

Net present value

Three years ago, Knox Glass purchased a machine for a three-year project. The machine is being depreciated straight-line to zero over a five-year period. Assume the firm decided to forego any bonus depreciation. Today, the project ended and the machine was sold. Which one of the following correctly defines the aftertax salvage value of that machine? (TC represents the relevant tax rate)

Sale price + (Book value − Sale price)(TC)

Which one of the following best illustrates erosion as it relates to a hot dog stand located on the beach?

Selling fewer hot dogs because hamburgers were added to the menu

GL Plastics spent $1,200 last week repairing a machine. This week the company is trying to decide if the machine could be better utilized if they assigned it a proposed project. When analyzing the proposed project, the $1,200 should be treated as which type of cost?

Sunk

The internal rate of return is defined as the:

discount rate which causes the net present value of a project to equal zero

A project has an initial cost of $27,400 and a market value of $32,600. What is the difference between these two values called?

net present value

The length of time a firm must wait to recoup the money is has invested in a project is called the:

payback period