4046761
Pregunta 1
Pregunta
The payback period is the amount of time, rounded to the nearest year, which is required for a firm to recover the cost of a new asset.
Respuesta
- True
- False
Pregunta 2
Pregunta
Net present value is considered a sophisticated capital budgeting technique since it gives consideration to the time value of money.
Respuesta
- True
- False
Pregunta 3
Pregunta
The internal rate of return is the discount rate that equates the present value of the cash inflows of a project with its initial investment.
Respuesta
- True
- False
Pregunta 4
Pregunta
If the NPV of a project is zero, the IRR of that project will always be less than the firm's cost of capital.
Respuesta
- True
- False
Pregunta 5
Pregunta
The goal of the firm should be to use its budget to generate the highest possible internal rate of return for its cash inflows.
Respuesta
- True
- False
Pregunta 6
Pregunta
The NPV assumes that periodic cash inflows are invested at a rate equal to the firm's cost of capital.
Respuesta
- True
- False
Pregunta 7
Pregunta
A net present value profile is a graphical presentation of the NPV at various discount rates.
Respuesta
- True
- False
Pregunta 8
Pregunta
In reference to capital budgeting, risk is the chance that a project has a high degree of variability in the initial investment.
Respuesta
- True
- False
Pregunta 9
Pregunta
For conventional projects, the NPV and the IRR will always produce the same accept-reject decision.
Respuesta
- True
- False
Pregunta 10
Pregunta
The break-even cash inflow is the minimum level of cash inflow associated with a project to be acceptable.
Respuesta
- True
- False
Pregunta 11
Pregunta
The internal rate of return assumes that the periodic cash flows associated with a project will be reinvested at the project's IRR.
Respuesta
- True
- False
Pregunta 12
Pregunta
For stand-alone projects, the PI will always give the same accept/reject decision as NPV.
Respuesta
- True
- False
Pregunta 13
Pregunta
One of the weaknesses of the payback approach is that it assumes cash flows are reinvested at an interest rate which is generally too high.
Respuesta
- True
- False
Pregunta 14
Pregunta
One of the weaknesses of the IRR approach is multiple IRRs.
Respuesta
- True
- False
Pregunta 15
Pregunta
Theoretically, NPV is superior to all of the other decision methods.
Respuesta
- True
- False
Pregunta 16
Pregunta
One of the disadvantages of the payback methods (either regular or discounted) is that it considers all cash flows throughout the entire life of a project.
Respuesta
- True
- False
Pregunta 17
Pregunta
Assuming that the total cash flows are equal, the NPV of a project whose cash flows accrue relatively rapidly is more sensitive to changes in the discount rate than is the NPV of a project whose cash flows come in more slowly.
Respuesta
- True
- False
Pregunta 18
Pregunta
Other things held constant, an increase in the cost of capital discount rate will result in a decrease of a project's IRR.
Respuesta
- True
- False
Pregunta 19
Pregunta
The modified IRR (MIRR) always lead to the same capital budgeting decisions as the NPV methods.
Respuesta
- True
- False
Pregunta 20
Pregunta
If the IRR of normal Project X is greater than the IRR of mutually exclusive Project Y (also normal), we can conclude that the form will select X rather than Y if has a NVP > 0.
Respuesta
- True
- False
Pregunta 21
Pregunta
The ______ is the exact amount of time it takes the firm to recover its initial investment.
Respuesta
-
internal rate of return
-
net present value
-
payback period
-
certainty equivalent
Pregunta 22
Pregunta
A firm is evaluating a proposal which has an initial investment of $45,000 and has cash flows of $5,000 in year 1, $20,000 in year 2, $15,000 in year 3, and $10,000 in year 4. The payback period of the project is ____.
Respuesta
-
3.5 years
-
3 years
-
4 years
-
2.5 years
Pregunta 23
Pregunta
All of the following are examples of sophisticated capital budgeting techniques EXCEPT
Respuesta
-
net present value
-
annualized net present value
-
internal rate of return
-
payback period
Pregunta 24
Pregunta
The _____ is the discount rate that equates the present value of the cash inflows with the initial investment.
Respuesta
-
cost of capital
-
internal rate of return
-
average rate of return
-
opportunity cost
Pregunta 25
Pregunta
A firm with a cost of capital of 11% is evaluating four capital projects. The internal rate of return are as follows:
Project / IRR
1 13%
2 10%
3 11%
4 15%
The firm should
Respuesta
-
accept 4 and 1, and reject 2 and 3
-
accept 4, 1, and 3 and reject 2
-
accept 4 and reject 1,2,3
-
accept 3 and reject 1,2, and 4
Pregunta 26
Pregunta
The _____ is the minimum amount of return that must be earned on a project in order to leave the firm's value unchanged.
Respuesta
-
internal rate of return
-
compound rate
-
discount rate
-
risk free interest rate
Pregunta 27
Pregunta
Project Initial Investment IRR NPV
1 $100,000 17% $50,000.00
2 $200,000 15% $10,000.00
3 $125,000 14% $30,000.00
4 $100,000 11% $(2,500.00)
5 $75,000 19% $25,000.00
Using the internal rate of return approach to ranking projects, which projects should the firm accept?
Respuesta
-
1,2,3, and 5
-
1,2, and 5
-
1,2, and 3
-
1,2,3,4, and 5
Pregunta 28
Pregunta
Project Initial Investment IRR NPV
1 $100,000 17% $50,000.00
2 $200,000 15% $10,000.00
3 $125,000 14% $30,000.00
4 $100,000 11% $(2,500.00)
5 $75,000 19% $25,000.00
Using the net present value approach to ranking projects, which should be accepted?
Respuesta
-
1,2,3,4, and 5
-
1,2, and 3
-
1,2,3, and 5
-
1,2, and 5
Pregunta 29
Pregunta
A firm is evaluating an investment proposal which has an initial investment of $8,000 and a discounted cash flow valued at $6,000. The net present value of the investment is _____.
Respuesta
-
0
-
-$2,000
-
$2,000
-
$6,000
Pregunta 30
Pregunta
Comparing net present value and internal rate of return analysis _____.
Respuesta
-
always results in the same ranking of projects
-
always results in the same accept/reject decision
-
may result in differing ranking
-
both b and c are correct
Pregunta 31
Pregunta
Unlike the IRR criteria, the NPV approach assumes an interest rate equal to the _____.
Respuesta
-
market interest rate
-
project's internal rate of return
-
risk free rate of return
-
firm's cost of capital
Pregunta 32
Pregunta
Year Cash Inflow
1 $50,000
2 $65,000
3 $90,000
A firm has undertaken a project with an initial investment of $100,000. The firm's cost of capital is 14%. What is the NPV for the project?
Respuesta
-
$50,000
-
$32,486
-
$54,622
-
$76,549
Pregunta 33
Pregunta
Year Cash Inflow
1 $50,000
2 $65,000
3 $90,000
A firm has undertaken a project with an initial investment of $100,000. The firm's cost of capital is 14%. What is the IRR for the project?
Respuesta
-
41%
-
46%
-
32%
-
22%
Pregunta 34
Pregunta
Initial investment: $75,000
Cost of capital: 14%
Risk free rate: 6%
Year Cash Inflow Certainty Equivalent
1 $30,000 0.9
2 $35,000 0.8
3 $40,000 0.75
The certain cash inflow for year 1 is_____.
Respuesta
-
$31,800
-
$30,000
-
0
-
$27,000
Pregunta 35
Pregunta
Initial investment: $75,000
Cost of capital: 14%
Risk free rate: 6%
Year Cash Inflow Certainty Equivalent
1 $30,000 0.9
2 $35,000 0.8
3 $40,000 0.75
Using the certainty equivalent method, the net present value for the project is _____.
Respuesta
-
$5,246
-
$581
-
$18,036
-
- $2,700
Pregunta 36
Pregunta
The objective of _____ is to select the group of projects that provide the highest overall net present value and does not require more dollars than are budgeted.
Respuesta
-
scenario analysis
-
simulation
-
capital rationing
-
sensitivity analysis
Pregunta 37
Pregunta
Mutually exclusive
Cost of Capital 10%
Project A Project B
Length of cash inflows 5 7
NPV $12,000 $14000
What is the annualized net present value of project a and project b?
Respuesta
-
$3,165 and $2,876
-
$2,378 and $1,850
-
$2,986 and $4,197
-
$4,174 and $4,915
Pregunta 38
Pregunta
A project that has a coefficient of variation of zero is considered _____.
Respuesta
-
slightly risky
-
a bad investment
-
very risky
-
risk free
Pregunta 39
Pregunta
An increase in the risk adjusted discount rate will result in _____.
Respuesta
-
no change to the NPV
-
a decrease in the NPV
-
an increase in the NPV
-
an increase in the IRR
Pregunta 40
Pregunta
The amount by which the required discount rate exceeds the risk free rate is called the _____.
Respuesta
-
risk equivalent
-
risk premium
-
excess risk
-
market risk function
Pregunta 41
Pregunta
A major disadvantage of the payback period method is that it _____.
Respuesta
-
is useless as a risk indicator
-
ignores cash flows beyond the payback period
-
both
-
neither
Pregunta 42
Pregunta
If the NPV is negative, then which of the following must be true? The discount rate used is
Respuesta
-
equal to the internal rate of return
-
too high
-
greater than the IRR
-
too low
Pregunta 43
Pregunta
The internal rate of return of a capital investment
Respuesta
-
changes when the cost of capital changes
-
must exceed the cost of capital in order for the firm to accept the investment
-
is equal to the annual net cash flows divided by the project cost
-
is similar to the yield common stock
Pregunta 44
Pregunta
An insurance firm agrees to pay you $3,310 at the end of 20 years if you pay premiums of $100 per year at the end of each year of 20 years. Find the internal rate of return to the nearest whole percentage point.
Respuesta
-
9%
-
7%
-
5%
-
3%
Pregunta 45
Pregunta
You are considering the purchase of an investment that would pay you $5,000 per years 1-5, $3,000 per years 6-8, and $2,000 per year for years 9 and 10. if you require a 14% rate of return, and the cash flows occur at the end of each year, then how much should you be willing to pay for this investment?
Respuesta
-
$15,819.27
-
$21,937.26
-
$32,415.85
-
$52,815.71
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