Ch 9 Fin 301

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The internal rate of return is a function of ____. a)a project's opportunity costs b)the market interest rate c)the cost of debt incurred by a project d)a project's cash flows

a projects cash flows

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

a)Starting cash flow: 1000 Ending cash flow: -2000

Select all that apply If a project has multiple internal rates of return, which of the following methods should be used? a)MIRR b)NPV c)IRR

a,b

Select all that apply The basic NPV investment rule is: Multiple select question. a) accept a project if the NPV is greater than zero. b) reject a project if its NPV is less than zero. c) accept a project if the discount rate is above zero. d) if the NPV is equal to zero, acceptance or rejection of the project is a matter of indifference e) accept a project if the NPV is less than zero.a

a,b,d

A project should be __________ if its NPV is greater than zero. a) accepted b) rejected c) delayed

accepted

Select all that Apply The three attributes of NPV are that it: a) doesn't rely on a discount rate. b) uses all the cash flows of a project. c) discounts the cash flows properly. c) uses cash flows.

b) uses all the cash flows of a project. c) discounts the cash flows properly. c) uses cash flows.

In capital budgeting, the net ______ determines the value of a project to the company. a) future values b) present values c) sales d) income

present value

In capital budgeting, the net ______ determines the value of a project to the company. a)income b)sales c)present value d)future value

present value

If the IRR is greater than the _______ ________, we should accept the project. a) payback period b) required return c) inflation rate d) tax rate

required return

Internal rate of return (IRR) must be compared to the ________ in order to determine the acceptability of a project. a)required return b)federal funds rate c)inflation rate

required return

The point at which the NPV profile crosses the vertical axis is the: a)cost of the project in the first year b)internal rate of return c)required rate of return d)sum of the cash flows of the project

sum of the cash flows of the project

True or false: IRR approach may lead to incorrect decisions in comparison of two mutually exclusive projects.

true

True or false: Some projects, such as mines, have cash outflows followed by cash inflows, which are then followed by cash outflows, giving the project multiple rates of return.

true

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: a) positive b) negative c) zero

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: a)positive b)zero c)negative

zero

Net _________ value is a measure of how much value is created or added today by undertaking an investment.

Present

__________ budgeting is the decision-making process for accepting and rejecting projects.

Capital

True or false: Some projects, such as mines, have cash outflows followed by cash inflows, which are then followed by cash outflows, giving the project multiple rates of return. a)True b)False

True

True or false: The crossover rate is the rate at which the NPVs of two projects are equal.

True

Select all that apply The IRR rule can lead to bad decisions when _____ or _____. a)payback period is less than two years. b)projects are mutually exclusive c)cash flows are not conventional d)NPV is positive

b)projects are mutually exclusive c)cash flows are not conventional

Select all that apply Which of the following are mutually exclusive investments? a)A restaurant or a gas station on opposite corners. b)A restaurant or a gas station on the same piece of land. c)Two different choices for the assembly lines that will make the same product. d)Two computer systems - one for the administrative office and one for the security cameras.

b,c

Select all that apply Which of the following are mutually exclusive investments? a)A restaurant or a gas station on opposite corners. b)Two different choices for the assembly lines that will make the same product. c)A restaurant or a gas station on the same piece of land. d)Two computer systems - one for the administrative office and one for the security cameras.

b,c

Capital ____ is the decision-making process for accepting and rejecting projects. a) structure b) relevance c) budgeting d) spending

budgeting

Capital ______ is the decision-making process for accepting and rejecting projects. a)spending b)structure c)budgeting d)relevance

budgeting

The ________rate is the rate at which the NPVs of two projects are equal.

crossover

NPV ______ cash flows properly. a) discounts b) compounds

discounts

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

exclusive

True or false: The MIRR function eliminates multiple IRRs and should replace NPV.

false

The IRR can lead to the wrong decision when cash (inflows/outflows) occur before cash (inflows/outflows).

inflows,outflows

The point at which the NPV profile crosses the horizontal axis is the: a)sum of the cash flows of the project b)cost of the project in the first year c)internal rate of return d)required rate of return

internal rate of return

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.

multiple

The IRR rule can lead to bad decisions when cash flows are _____ or projects are mutually exclusive. a)conventional b)not conventional c)certain

not conventional

For a project with conventional cash flows, the NPV is ______ if the required return is less than the IRR, and it is ______ if the required return is greater than the IRR. a) positive, negative b) negative, negative c) positive, positive d) negative, positive

positive, negative


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