FIN 310 Chapter 8

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

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

Which one of the following is the primary advantage of payback analysis?

Ease of use

The profitability index reflects the value created per dollar:

Invested

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?

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

Positive net present value

Which one of the following indicates that a project is definitely acceptable? Profitability index greater than 1.0 Negative net present value Modified internal rate return that is lower than the requirement Zero internal rate of return Positive average accounting return

Profitability index greater than 1.0

An investment has conventional cash flows and a profitability index of 1.0. Given this, which one of the following must be true?

The net present value is equal to zero

Which one of the following statements is correct?

The payback method is biased towards short-term projects.

Which one of the following methods of analysis ignores cash flows?

Average accounting return

Which one of the following methods of analysis is most similar to computing the return on assets (ROA)?

Average accounting return