FIN 3340 Ch 13 quiz

Which of the following best describes the NPV profile?

A graph of a project's NPV as a function of possible capital costs.

Which of the following statements is correct?

A weakness of both payback and discounted payback is that neither accounts for cash flows received after the payback.

A disadvantage of the payback statistic is that

All of these choices are correct.

Which of the following is a technique for evaluating capital projects that tells how long it will take a firm to earn back the money invested in a project plus interest at market rates?

Discounted payback

A capital budgeting technique that generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flows is referred to as

NPV.

Which of these is a capital budgeting technique that generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flows?

Net present value

Which of these are sets of cash flows where all the initial cash flows are negative and all the subsequent ones are either zero or positive?

Normal cash flows

The least-used capital budgeting technique in industry is

Payback

Which of the following is a technique for evaluating capital projects that is particularly useful when firms face time constraints in repaying investors?

Payback

Which of the following is a technique for evaluating capital projects that tells how long it will take a firm to earn back the money invested in a project?

Payback

Which rate-based decision statistic measures the excess return (the amount above and beyond the cost of capital for a project), rather than the gross return?

Profitability index (PI)

When choosing a capital budgeting technique(s) to use, which of the following sub-choices is affected?

all of the above

We accept projects with a positive NPV because it means that

all of the options.

Which of the following statements regarding payback (PB) is/are true?

both a and b are true

A project's IRR is the interest rate that

causes the project's NPV to equal zero.

The net present value decision technique uses a statistic denominated in

currency.

A graph of a project's ________ is a function of cost of capital.

net present value

The benchmark for the profitability index (PI) is the

one or anything larger than one.