FIN 3610 QUIZ UNIT 8

Salazar's Salads is considering two projects. Project X consists of creating an outdoor eating area on the unused portion of the restaurant's property. Project Z would instead use that outdoor space for creating a drive-thru service window. When trying to decide which project to accept, the firm should rely most heavily on which one of the following analytical methods?

Net present value

Which one of the following methods of analysis provides the best information on the benefits to be received from a project per dollar invested?

Profitability index

Which one of the following is an example of a sunk cost?

$2,000 paid last year to rent equipment

Boyd Leasing is analyzing a project that requires purchasing $210,000 of new fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $22,000. How is the $22,000 salvage value handled when computing the net present value of the project?

Cash inflow in the final year of the project

Machlab Equipment is comparing three machines to determine which one to purchase. Each machine has a unique price, annual operating cost, and life span. Which one of the following computational methods should Machlab use as the basis for its decision?

Equivalent annual cost

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

Internal rate of return and net present value

The current book value of a fixed asset that was purchased two years ago is used in the computation of which one of the following?

Tax due on the current salvage value of that asset

Which one of the following statements related to the internal rate of return (IRR) is correct?

The IRR is equal to the required return when the net present value is equal to zero.

If a firm accepts Project X it will not be feasible to also accept Project Z because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be:

mutually exclusive.

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

payback period.

A project has a net present value of zero. Given this information:

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