Ch 9 extra practice FIN
Western Beef Exporters is considering a project that has an NPV of $32,600, an IRR of 15.1 percent, and a payback period of 3.2 years. The required return is 14.5 percent and the required payback period is 3.0 years. Which one of the following statements correctly applies to this project?
The payback decision rule could override the accept decision indicated by the net present value.
Which one of the following statements would generally be considered as accurate given independent projects with conventional cash flows?
The payback decision rule could override the net present value decision rule should cash availability be limited.
Which one of the following statements is correct in relation to independent projects?
Which one of the following statements is correct in relation to independent projects?
The final decision on which one of two mutually exclusive projects to accept ultimately depends upon which one of the following?
required rate of return
The internal rate of return is:
tedious to compute without the use of either a financial calculator or a computer.
A project with financing type cash flows is typified by a project that has which one of the following characteristics?
a cash inflow at time zero
You are comparing two mutually exclusive projects. The crossover point is 12.3 percent. You have determined that you should accept project A if the required return is 13.1 percent. This implies you should:
always accept project A if the required return exceeds the crossover rate.
How is salvage value handled when computing Net present value of a project
cash inflow in the final year of the project
If a project has a net present value of zero:
cash inflows=cash outflows
Which one of the following changes to the project would be most expected to increase the project's internal rate of return?
condensing the firm's cash inflows into fewer years without lowering the total amount of those inflows
computing the value of a project based upon the present value of the project's anticipated cash flows?
discounted cash flow valuation
Which two methods of project analysis were the most widely used by CEO's as of 1999?
internal rate of return and net present value
a project acceptance indicator given an independent project with investing type cash flows?
modified internal rate of return that exceeds the required return
Which of the following statements related to the internal rate of return (IRR) are correct?
I. The IRR method of analysis can be adapted to handle non-conventional cash flows. II. The IRR that causes the net present value of the differences between two project's cash flows to equal zero is called the crossover rate. III. The IRR tends to be used more than net present value simply because its results are easier to comprehend. IV. Both the timing and the amount of a project's cash flows affect the value of the project's IRR.
Southern Chicken is considering two projects. Project A consists of creating an outdoor eating area on the unused portion of the restaurant's property. Project B would 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
The profitability index is most closely related to which one of the following?
net present value
Which one of the following correctly applies to the average accounting rate of return?
It is the primary methodology used in analyzing independent projects.
The present value of an investment's future cash flows divided by the initial cost of the investment is called the
profitability index
Which one of the following methods of analysis provides the best information on the cost-benefit aspects of a project?
profitability index
A project has a discounted payback period that is equal to the required payback period:
I. The project must also be acceptable under the payback rule. II. The project must have a profitability index that is equal to or greater than 1.0.
In actual practice, managers frequently use the:
I. average accounting return method because the information is so readily available. II. internal rate of return because the results are easy to communicate and understand IV. net present value because it is considered by many to be the best method of analysis.
Which of the following are considered weaknesses in the average accounting return method of project analysis?
I. exclusion of time value of money considerations II. need of a cutoff rate IV. based on accounting values
Which of the following statements generally apply to the cash flows of a financing type project?
I. nonconventional cash flows II. cash outflows exceed cash inflows prior to any time value adjustments III. cash for services rendered is received prior to the cash that is spent providing the services
Which of the following are definite indicators of an accept decision for an independent project with conventional cash flows?
I. positive net present value III. internal rate of return greater than the required rate
