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You are considering a project with an initial cost of $13,000.What is the payback period for this project if the annual cash inflows are $3,450,$5,970,$2,100,and $1,400 for Years 1 to 4,respectively?


A) 4) 06 years
B) 3) 97 years
C) 3) 89 years
D) Never
E) 3) 81 years

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

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If the discounted payback method is preferable to the payback method,then why is the payback method ever used?


A) The discounted payback requires an arbitrary cutoff point while payback does not.
B) Payback is easier to compute than discounted payback.
C) Payback considers all of a project's cash flows but discounted payback does not.
D) Payback requires the initial investment be recovered during a project's life while the required discounted payback period may be shorter.
E) Payback can be used with mutually exclusive projects but discounted payback cannot.

F) None of the above
G) A) and D)

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The Walk-Up Window is considering two mutually exclusive projects.Project A has an initial cost of $64,230 and annual cash flows of $25,200 for three years.Project B has an initial cost of $45,400 and annual cash flows of $21,400,$21,900,and $10,200 for Years 1 to 3,respectively.What is the incremental IRRA-B? Which project should be accepted if the discount rate is 9 percent? Which project should be accepted if the discount rate is 6 percent?


A) 6) 65%;Project A;Project A
B) 6) 65%;Project B;Project A
C) 7) 21%;Project A;Project B
D) 7) 21%;Project B: Project A
E) 6) 65%;Project A;Project B

F) None of the above
G) A) and B)

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What is the primary shortcoming of the average accounting rate of return from a financial perspective?


A) The lack of use in the business world
B) The lack of a clear-cut decision rule
C) The degree of the calculation difficulty
D) The degree of estimation involved with the initial cost
E) The use of net income rather than cash flows

F) A) and B)
G) A) and C)

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The discounted payback period of a project will decrease whenever the


A) initial cash outlay for the project is increased.
B) amount of each projected cash inflow is decreased.
C) discount rate applied to the project is decreased.
D) time period of the project is increased.
E) costs of the fixed assets utilized in the project increase.

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

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Project Water has an initial cost of $598,900 and projected cash flows of $302,000,$264,000,and $250,000 for Years 1 to 3,respectively.Project Aqua has an initial cost of $512,200 and projected cash flows of $290,000,$214,000,and $220,000 for Years 1 to 3,respectively.What is the incremental IRRA-B of these two mutually exclusive projects?


A) 8) 67%
B) 6) 93%
C) 2) 75%
D) 11.06%
E) 4) 37%

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

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C

Baxter's Market is considering opening a new location with an initial cost of $139,200.This location is expected to generate cash flows of $22,400,$61,500,$37,800,and $21,000 in Years 1 to 4,respectively.What is the payback period?


A) 3) 92 years
B) 3) 83 years
C) 2) 46 years
D) 2) 57 years
E) 3) 01 years

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

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You are considering two independent projects both of which have been assigned a discount rate of 12 percent.Project A costs $39,100 and produces cash flows of $15,900 a year for 3 years.Project B costs $22,900 and produces cash flows of $14,000 a year for 2 years.Based on the profitability index,what is your recommendation concerning these projects?


A) Accept both projects
B) Accept Project B because it has the lower PI
C) Accept Project A because it has the lower PI
D) Accept Project A and reject Project B
E) Reject Project A and accept Project B

F) B) and D)
G) B) and C)

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Rodriquez's Hot Rods is considering a new project with an initial cost of $54,780 and a discount rate of 14 percent.The project is expected to have cash inflows of $27,000 a year for 3 years.What is the discounted payback period?


A) 2) 17 years
B) 2) 11 years
C) 2) 62 years
D) 2) 57 years
E) Never

F) All of the above
G) None of the above

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Project A has an initial cost of $211,400 and projected cash flows of $46,200,$64,900,and $135,800 for Years 1 to 3,respectively.Project B has an initial cost of $187,900 and projected cash flows of $43,200,$59,700,and $125,600 for Years 1 to 3,respectively.What is the incremental IRRA-B of these two mutually exclusive projects?


A) 8) 67%
B) −6.93%
C) 11.06%
D) −9.62%
E) 9) 37%

F) A) and B)
G) A) and C)

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A new product has start-up costs of $389,200 and projected cash flows of $102,000,$187,500,and $245,000 for Years 1 to 3,respectively.What is the profitability index given a required return of 14 percent?


A) 0) 98
B) 0) 83
C) 1) 16
D) 1) 03
E) 1) 21

F) D) and E)
G) C) and D)

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D

Two key weaknesses of the internal rate of return rule are the


A) arbitrary determination of a discount rate and failure to consider initial expenditures.
B) failure to correctly analyze mutually exclusive projects and the multiple rate of return problem.
C) failure to consider all cash flows and the multiple rate of return problem.
D) failure to consider initial expenditures and failure to correctly analyze mutually exclusive projects.
E) failure to correctly analyze mutually exclusive projects and the lack of a clear-cut decision rule.

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

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Turner Enterprises is analyzing a project that is expected to have annual cash flows of $46,400,$51,300 and -$15,200 for Years 1 to 3,respectively.The initial cash outlay is $65,900 and the discount rate is 12 percent.What is the modified IRR?


A) 17.77%
B) 18.13%
C) 18.66%
D) 17.04%
E) 16.98%

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

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The average accounting return method


A) ignores some project years.
B) ignores the timing of net income.
C) properly discounts all values.
D) is preferred by financial analysts over the alternative methods.
E) is never used in practice.

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

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Assume a project has normal cash flows and a positive (non-zero) net present value.The project's


A) profitability index will be less than 1.
B) internal rate of return will exceed its required rate of return.
C) costs exceed its benefits.
D) discounted payback period will exceed the life of the project.
E) payback period must equal the life of the project.

F) A) and B)
G) A) and C)

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You are considering two independent projects.The required rate of return is 13.75 percent for Project A and 14.25 percent for Project B.Project A has an initial cost of $51,400 and cash inflows of $21,400,$24,900,and $22,200 for Years 1 to 3,respectively.Project B has an initial cost of $38,300 and cash inflows of $23,000 a year for 2 years.Which project(s) ,if either,should you accept?


A) Accept both A and B
B) Reject both A and B
C) Accept A and reject B
D) Accept B and reject A
E) Accept either A or B but not both A and B

F) C) and D)
G) B) and D)

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Which methods of project analysis are most biased towards short-term projects?


A) Net present value and internal rate of return
B) Payback and discounted payback
C) Accounting rate of return and internal rate of return
D) Payback and accounting rate of return
E) Internal rate of return and discounted payback

F) None of the above
G) A) and B)

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B

An investment


A) is acceptable if its calculated payback period is less than some prespecified period of time.
B) should be accepted if the payback is positive and rejected if it is negative.
C) should be rejected if the payback is positive and accepted if it is negative.
D) is acceptable if its calculated payback period is greater than some prespecified period of time.
E) should be accepted any time the payback period is less than the discounted payback period,given a positive discount rate.

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

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Assume a project has normal cash flows.Given this,you should accept the project


A) if,and only if,the NPV is exactly equal to zero.
B) only if the NPV is equal to the initial cash flow.
C) if the NPV is positive and reject it if the NPV is negative.
D) if the total cash inflows exceed the initial cash outflow.
E) because it has positive cash flows for every time period after the initial investment.

F) A) and E)
G) A) and B)

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A project is expected to have annual cash flows of $36,800,$24,600,and -$9,200 for Years 1 to 3,respectively.The initial cash outlay is $44,500 and the discount rate is 11 percent.What is the modified IRR?


A) 14.66%
B) 13.22%
C) 12.73%
D) 18.67%
E) 15.70%

F) B) and E)
G) None of the above

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