FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 9: Making Capital Investment Decisions

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

Multiple Choice

Review LaterAdd Note

Review Later

The internal rate of return is:

A) the discount rate that makes the net present value of a project equal to the initial cash outlay.
B) equivalent to the discount rate that makes the net present value equal to one.
C) tedious to compute without the use of either a financial calculator or a computer.
D) highly dependent upon the current interest rates offered in the marketplace.
E) a better methodology than net present value when dealing with unconventional cash flows.

F) A) and E)
G) A) and D)

Correct Answer

verified

Show Answer

Question 42

Multiple Choice

Review LaterAdd Note

Review Later

Douglass Interiors is considering two mutually exclusive projects and have determined that the crossover rate for these projects is 11.7 percent.Project A has an internal rate of return (IRR) of 15.3 percent and Project B has an IRR of 16.5 percent.Given this information, which one of the following statements is correct?

A) Project A should be accepted as its IRR is closer to the crossover point than is Project B's IRR.
B) Project B should be accepted as it has the higher IRR.
C) Both projects should be accepted as both of the project's IRRs exceed the crossover rate.
D) Neither project should be accepted since both of the project's IRRs exceed the crossover rate.
E) You cannot determine which project should be accepted given the information provided.

F) A) and D)
G) B) and D)

Correct Answer

verified

Show Answer

Question 43

Multiple Choice

Review LaterAdd Note

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

Graphing the crossover point helps explain:

Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets.When the project ends, those assets are expected to have an aftertax salvage value of $45,000.How is the $45,000 salvage value handled when computing the net present value of the project?

You are analyzing a project and have gathered the following data: Based on the profitability index of _____ for this project, you should _____ the project.

A project has a required payback period of three years.Which one of the following statements is correct concerning the payback analysis of this project?

A project has average net income of $5,900 a year over its 6-year life.The initial cost of the project is $98,000 which will be depreciated using straight-line depreciation to a book value of zero over the life of the project.The firm wants to earn a minimum average accounting return of 11.5 percent.The firm should _____ the project because the AAR is _____ percent.

There are two distinct discount rates at which a particular project will have a zero net present value.In this situation, the project is said to:

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 IV.the total of all cash flows must equal zero on an unadjusted basis

Cool Water Drinks is considering a proposed project with the following cash flows.Should this project be accepted based on the combined approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 12.6 percent? Why or why not?

Which one of the following statements is correct in relation to independent projects?

You are considering the following two mutually exclusive projects.Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project.Neither project has any salvage value. Should you accept or reject these projects based on net present value analysis?

You are considering a project with an initial cost of $7,500.What is the payback period for this project if the cash inflows are $1,100, $1,640, $3,800, and $4,500 a year over the next four years, respectively?

Rosa's Designer Gowns creates exquisite gowns for special occasions on a prepaid basis only.The required return is 8 percent.Rosa has estimated the cash flows for one gown as follows.Should Rosa sell this gown at the price she is currently considering based on the estimated internal rate of return (IRR) ?

A project has an initial cost of $32,000 and a 3-year life.The company uses straight-line depreciation to a book value of zero over the life of the project.The projected net income from the project is $1,200, $2,300, and $1,800 a year for the next 3 years, respectively.What is the average accounting return?

An investment has the following cash flows and a required return of 13 percent.Based on IRR, should this project be accepted? Why or why not?

The Square Box is considering two projects, both of which have an initial cost of $35,000 and total cash inflows of $50,000.The cash inflows of project A are $5,000, $10,000, $15,000, and $20,000 over the next four years, respectively.The cash inflows for project B are $20,000, $15,000, $10,000, and $5,000 over the next four years, respectively.Which one of the following statements is correct if The Square Box requires a 13 percent rate of return and has a required discounted payback period of 3.5 years?

A project has a discounted payback period that is equal to the required payback period.Given this, which of the following statements must be true? 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. III.The project must have a zero net present value. IV.The project's internal rate of return must equal the required return.

An investment project has an installed cost of $518,297.The cash flows over the 4-year life of the investment are projected to be $287,636, $203,496, $103,802, and $92,556, respectively.What is the NPV of this project if the discount rate is zero percent?