Ch. 8 homework

The modified internal rate of return is specifically designed to address the problems associated with which one of the following?

Unconventional cash flows

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

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

A firm evaluates all of its projects by applying the IRR rule. Year Cash Flow 0 -$ 160,000 1 56,000 2 83,000 3 67,000 Requirement 1: What is the project's IRR? Requirement 2: If the required return is 15 percent, should the firm accept the project?

IRR = 13.35% No

Which one of the following statements is correct?

If the initial cost of a project is increased, the net present value of that project will also increase. ----If the internal rate of return equals the required return, the net present value will equal zero.------ Net present value is equal to an investment's cash inflows discounted to today's dollars. The net present value is a measure of profits expressed in today's dollars. The net present value is positive when the required return exceeds the internal rate of return.

Net present value:

Is the preferred capital budgeting tool, in principle, and indicates how much value is added today by taking an investment.

Which one of the following methods of analysis ignores the time value of money?

Payback

You were recently hired by a firm as a project analyst. The owner of the firm is unfamiliar with financial analysis and wants to know only 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?

Profitability index

Global Toys, Inc., imposes a payback cutoff of three years for its international investment projects. Assume the company has the following two projects available. Year Cash Flow A Cash Flow B 0 -$ 52,000 -$ 97,000 1 20,500 22,500 2 27,200 27,500 3 22,500 31,500 4 8,500 243,000

Project A 2.19 ± 1% years Project B 3.06 ± 1% years Accept project A and reject project B

The internal rate of return is unreliable as an indicator of whether or not an investment should be accepted given which one of the following?

The investment is mutually exclusive with another investment under consideration.

When comparing NPV to IRR:

The two methods agree for projects that are independent and conventional. Both reflect the time value of money. Both consider all of a project's cash flows. *****All of these***

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

cost and its market value

An investment is expected to provide cash inflows of $100,000 at the end of each of the next six years. What is the market value of the investment using a discount rate of 12%, rounded to the nearest dollar?

$411,141

The net present value of a conventional project will decrease, everything else equal, when:

All of these