Corp Finance Chapter 9 McGraw

A project should be __________ if its NPV is greater than zero.

accepted

The amount of time needed for the cash flows from an investment to pay for its initial cost is the _____ period.

payback period

The profitability index will be bigger than one for a (negative/positive) NPV investment and less than one for a (negative/positive) NPV investment.

positive negative

The IRR rule can lead to bad decisions when _____ or _____.

- Cash flows are not conventional - Projects are mutually exclusive

An independent project (does/doesn't) rely on the acceptance or rejection of another project.

doesn't

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

Net value is a measure of how much value is created or added today by undertaking an investment.

present

In capital budgeting, the net ______ determines the value of a project to the company.

present value

If the IRR is greater than the _______ ________, we should accept the project.

required return

Internal rate of return (IRR) must be compared to the ________ in order to determine the acceptability of a project.

required return

True or false: IRR approach may lead to incorrect decisions in comparison of two mutually exclusive projects.

true

The three attributes of NPV are that it:

- uses cash flows - uses all the cash flows of the project - discounts the cash flows properly

The basic NPV investment rule is:

-if the NPV is equal to zero, acceptance or rejection of the project is a matter of indifference -accept a project if the NPV is greater than zero. -reject a project if its NPV is less than zero.

Which of the following are mutually exclusive investments? Multiple select question.

nonconventional cash flows mutually exclusive projects

One of the flaws of the payback period method is that cash flows after the cutoff date are ___.

not considered in the analysis

The IRR rule can lead to bad decisions when cash flows are _____ or projects are mutually exclusive.

not conventional

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:

zero

The IRR is the discount rate that makes the NPV of a project equal to ______.

zero

If a project has multiple internal rates of return, which of the following methods should be used?

MIRR NPV

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 rates or return problem

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.

Positive, negative NPV is positive --> if the required return is < IRR NPV is negative --> if the required return is > IRR

The profitability index is calculated by dividing the PV of the _________ cash flows by the initial investment.

future

The payback period can lead to incorrect decisions if it is used too literally because it ____.

ignores cash flows after the cutoff date

A(n) ______ project does not rely on the acceptance or rejection of another project.

independent

The present value of all cash flows (after the initial investment) is divided by the ______ to calculate the profitability index.

initial investment

The payback period rule ______ a project if it has a payback period that is less than or equal to a particular cutoff date.

accepts

Capital ______ is the decision-making process for accepting and rejecting projects.

budgeting

budgeting is the decision-making process for accepting and rejecting projects.

capital

NPV ______ cash flows properly.

discounts