Finance Exam 3

TL Lumber is evaluating a project with cash flows of −$12,800, $7,400, $11,600, and −$3,200 for Years 0 to 3, respectively. Given an interest rate of 8 percent, what is the MIRR using the discounted approach?

14.36%

Isaac has analyzed two mutually exclusive projects that have 3-year lives. Project A has an NPV of $81,406, and a payback period of 2.48 years, . Project B has an NPV of $82,909 and a payback period of 2.57 years, . The required return for Project A is 11.5 percent while it is 12 percent for Project B. Isaac must make a recommendation and justify it in 15 words or less. What should his recommendation be?

Accept project B and reject A because of NPV

The length of time a firm must wait to recoup, in present value terms, the money it has invested in a project is referred to as the:

Discounted Payback Period

There are two distinct discount rates at which a particular project will have a zero net present value. In this situation, the project is said to:

Have multiple rates of return

Net present value:

is the best method of analyzing mutually exclusive projects.

The internal rate of return is:

tedious to compute without the use of either a financial calculator or a computer.

In actual practice, managers most frequently use which two types of investment criteria?

Internal Rate of Return and Net Present Value

The final decision on which one of two mutually exclusive projects to accept ultimately depends upon which one of the following?

NPV

Which one of the following methods predicts the amount by which the value of a firm will change if a project is accepted?

Net Present Value

Scott is considering a project that will produce cash inflows of $2,900 a year for 3 years. The required rate of return is 15.4 percent and the initial cost is $6,800. What is the discounted payback period?

Never

Which two methods of project analysis are the most biased towards short-term projects?

Payback and discounted payback

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

Payback period

Samuelson Electronics has a required payback period of three years for all of its projects. Currently, the firm is analyzing two independent projects. Project A has an expected payback period of 2.9 years and a net present value of $4,200. Project B has an expected payback period of 3.1 years with a net present value of $26,400. Which project(s) should be accepted based on the payback decision rule?

Project A only

A project has a net present value of zero. Which one of the following best describes this project?

Project's inflows equal outflows