BADM 310: Exam 2 (Chapter 9 Multiple Choice Questions)

accepted

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

positive; negative

The profitability index will be bigger than one for a ________________ NPV investment and less than one for a _______________ NPV investment.

net

The spreadsheet NPV function actually calculates present value, not ___________________ present value, as the name suggests.

exclusive

A situation in which taking one investment prevents the taking of another is called a mutually _______________ investment decision.

discounted; discounted

Based on the __________________ payback rule, an investment is acceptable if its _____________ payback is less than some prespecified number of years.

accounting; accounting; accounting

Based on the average ________ return rule, a project is acceptable if its average_________ return exceeds a target average _________ return.

zero.

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 ________.

budgeting

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

required return

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

present value

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

Starting cash flow: 1000 Ending cash flow: -2000

In which of the following scenarios would IRR always recommend the wrong decision? - Starting cash flow: -100 Ending cash flow: +200 - Starting cash flow: -100,000 Ending cash flow: 110,000 - Starting cash flow: 1000 Ending cash flow: -2000

discounts

NPV _____________ cash flows properly.

not considered in the analysis.

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

relevant costs

Opportunity costs are classified as _____________?

accounting; economic

Payback period tells the time it takes to break even in an ____ sense. Discounted payback period tells the time it takes to break even in an ______ or financial sense.

a project's cash flows

The internal rate of return is a function of _______________.

smaller

The payback period method allows lower management to make __________________ , everyday financial decisions effectively.

sum of the cash flows of the project

The point at which the NPV profile crosses the vertical axis is the __________.

future

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

Short-Term Investment

Using the payback period rule will bias toward accepting which type of investment?

Discounted Payback Period

Which capital budgeting decision method finds the present value of each cash flow before calculating a payback period?

multiple

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.

False

T/F: The MIRR function eliminates multiple IRRs and should replace NPV.

True

T/F: The crossover rate is the rate at which the NPVs of two projects are equal. IRR approach may lead to incorrect decisions in comparison of two mutually exclusive projects.

doesn't

The AAR _________________ incorporate time value of money. An independent project _________________ rely on the acceptance or rejection of another project.

cash flows are not conventional; projects are mutually exclusive

The IRR rule can lead to bad decisions when ______________ or ________________.

economic

The discounted payback is the time it takes to break even in an ____________ or financial sense.