Finance Test 3 MC

book value of an asset is primarily used to compute what

amount of tax due on the sale of an asset

correct concerning payback period

an investment is acceptable if its calculated payback period is less than some pre-specified period of time

correct concerning NPV

an investment should be accepted if the NPV is positive and rejected if its negative

net present value

decreases as the required rate of return increases

internal rate of return

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

which of the following defines the internal rate of return for a project

discount rate that results in a zero net present value for the project

Primary advantage of payback analysis

ease of use

the internal rate of return tends to be

easier for managers to comprehend than the net present value

an investment is acceptable if its IRR

exceeds the required return

discounted cash flow valuation is the process of discounting an investments what

future cash flows

changes in a firms future cash flow s that are a direct consequence of accepting a project

incremental cash flows

operating cash flow should exclude what

interest expense

following is an indicator that an investment is accpetable

internal rate of return that exceeds the required return

erosion

loss of current sales due to a new project being implemented

projects A and B

mutually exclusive

methods of analysis is most appropriate to use when two investments are mutually exclusive

net present value

indicates that a project is expected to create value for its owners

positive net present value

payback period is the length of time it takes an investment to generate sufficient cash flows to enable the project to

recoup its initial cost

a cost that has already been paid, or the liability to pay has already been incurred

sunk cost

no matter how many forms of investment analysis you do

the actual results from a project may vary significantly from the expected results

statements is correct

the payback period ignores the time value of money

the problem of multiple IRRs can occur when

there is more than one sign change in the cash flows

correct

when the internal rate of return is greater than the required return, the NPV is positive