Finance Final Exam Review

Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project? a. cash inflow in the final year of the project b. not included in the net present value c. cash inflow for the year following the final year of the project d. reduction in the cash outflow at time zero e. cash inflow prorated over the life of the project

Cash inflow in the final year of the project

Why is payback often used as the sole method of analyzing a proposed small project? a. Payback is focused on the long-term impact of a project. b. All relevant cash flows are included in the payback analysis. c. It is the only method where the benefits of the analysis outweigh the costs of the analysis. d. Payback is the most desirable of the various financial methods of analysis. e. Payback considers the time value of money.

It is the only method where the benefits of the analysis outweigh the costs of the analysis.

You are viewing a graph that plots the NPVs of a project to various discount rates that could be applied to the project's cash flows. What is the name given to this graph? Select one: a. projected risk profile b. project tract c. NPV route d. NPV profile e. present value sequence

NPV profile

Which on of the following methods determines the amount of the change a proposed project will have on the value of a firm? a. profitability index b. Net present value c. internal rate of return d. discounted parback e. payback

Net present value

A project's average net income divided by its average book value is referred to as the project's average: a. internal rate of return b. profitability index c. net present value d. payback period e. accounting return

accounting return

Which one of the following increases the net present value of a project? a. a reduction in the final cash inflow b. an increase in the aftertax salvage value of the fixed assets c. a deferment of some cash inflows until a later year d. an increase in the required rate of return e. an increase in the initial capital requirement

an increase in the aftertax salvage value of the fixed assets

The internal rate of return is defined as the: a. discount rate that equates the net cash inflows of a project to zero b. discount rate that causes the profitability index for a project to equal zero c. rate of return a project will generate if the project is financed solely with internal funds d. maximum rate of return a firm expects to earn on a project e. discount rate which causes the net present value of a project to equal zero

discount rate which causes the net present value of a project to equal zero

Which one of the following methods of project analysis is defined as computing the value of a project based upon the present value of the project's anticipated cash flows? Select one: a. average accounting return b. expected earnings model c. discounted cash flow valuation d. internal rate of return e. constant dividend growth model

discounted cash flow valuation

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: a. payback period b. discounted profitability period c. net present value period d. internal return period e. discounted payback period

discounted payback period

Net present value: a. is less useful than the profitability index when comparing mutually exclusive projects. b. is the best method of analyzing mutually exclusive projects. c. is very similar in its methodology to the average accounting return. d. is the easiest method of evaluation for non-financial managers to use. e. is less useful than the internal rate of return when comparing different sized projects.

is the best method of analyzing mutually exclusive projects

If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be: a. economically scaled b. operationally distince c. mutually exclusive d. interdependent e. independent

mutually exclusive

A project has an initial cost of $27,400 and a market value of $32,600. What is the difference between these two values called? a. profitablility index b. discounted payback c. net present value d. internal return e. payback value

net present value

Which on of the following methods determines the amount of the change a proposed project will have on the value of a firm? a. Net present value b. discounted parback c. internal rate of return d. payback e. profitability index

net present value

The length of time a firm must wait to recoup the money is has invested in a project is called the: a. payback period b. valuation period c. internal rate of return d. profitability period e. discounted cash period

payback period

The present value of an investment's future cash flows divided by the initial cost of the investment is called the: Select one: a. internal rate of return b. net present value c. profile period d. average accounting return e. profitability index

profitability index

The fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles? a. underlying value principle b. fundamental principle c. salvage principle d. stand-alone principle e. equivalent cost principle

stand-alone principle

Which one of the following costs was incurred in the past and cannot be recouped? Select one: a. side b. incremental c. opportunity d. erosion e. sunk

sunk

If a project has a net present value equal to zero, then: a. a decrease in the project's initial cost will cause the project to have a negative NPV> b. the total of the cash inflows mus equal the initial cost of the project. c. the project earns a return exactly equal to the discount rate. d. any delay in receiving the projected cash inflows will cause the project to have a positive NPV. e. the project's PI must be also equal to zero.

the project earns a return exactly equal to the discount rate.

A project has a net present value of zero. Which one of the following best describes this project? a. The summation of all of the project's cash flows is zero b. the project's cash inflows equal its cash outflows in current dollar terms. c. The project has a zero percent rate of return d. The project requires no initial cash investment e. The project has no cash flows

the project's cash inflows equal its cash outflows in current dollar terms

The difference between a firm's future cash flows if it accepts a project and the firm's future cash flows if it does not accept the project is referred to as the projects: a. financing cash flows b. incremental cash flows c. internal cash flow d. erosion effects e. external cash flow

incremental cash flows

Which one of th following will decrease the net present value of a project? Select one: a. increasing the value of each of the project's discounted cash flows b. decreasing the required rate of return c. increasing the project's initial cost at time zero d. increasing the amount of the final cash inflow e. moving each of the cash inflows forward to a sooner time period

increasing the projects initial cost at time zero

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: a. have multiple rates of return b. have two net present value profiles c. create a mutually exclusive investment decision d. have operational ambiguity e. produce multiple economies of scale

have multiple rates of return

Which one of th following will decrease the net present value of a project? a. increasing the project's initial cost at time zero b. increasing the value of each of the project's discounted cash flows c. increasing the amount of the final cash inflow d. moving each of the cash inflows forward to a sooner time period e. decreasing the required rate of return

increasing the project's initial cost at time zero