Finance 701 Test 2 Part 2 Exam Questions and Answers
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Course
FIN701
Institution
FIN701
E) The project's cash inflows equal its cash outflows in current dollar terms - Answer-I)A project has a net present value of zero. Which one of the following best describes this project? A) The project has a zero percent rate of return. B) The project requires no initial cash investment. C) The pr...
Finance 701 Test 2 Part 2 Exam
Questions and Answers
E) The project's cash inflows equal its cash outflows in current dollar terms - Answer-I)A
project has a net present value of zero. Which one of the following best describes this
project? A) The project has a zero percent rate of return. B) The project requires no
initial cash investment. C) The project has no cash flows. D) The summation of all of the
project's cash flows is zero. E) The project's cash inflows equal its cash outflows in
current dollar terms
D) Increasing the project's initial cost at time zero - Answer-2) Which one of the
following will decrease the net present value of a project? A) Increasing the value of
each of the project's discounted cash inflows B) Moving each cash inflow forward one
time period, such as from Year 3 to Year 2 C) Decreasing the required discount rate D)
Increasing the project's initial cost at time zero E) Increasing the amount of the final
cash inflow
A) is the best method of analyzing mutually exclusive projects. - Answer-3) Net present
value: A) is the best method of analyzing mutually exclusive projects. B) is less useful
than the internal rate of return when comparing different-sized projects C) is the easiest
method of evaluation for nonfinancial managers. D) cannot be applied when comparing
mutually exclusive projects E) is very similar in its methodology to the average
accounting return.
B) payback period - Answer-4) The length of time a firm must wait to recoup the money
it has invested in a project is called the: A) internal return period B) payback period C)
profitability period. D) discounted cash period. E) valuation period.
C) The benefits of payback analysis usually outweigh the costs of the analysis. -
Answer-5) Why is payback often used as the sole method of analyzing a proposed
small project? A) Payback considers the time value of money. B) All relevant cash flows
are included in the payback analysis. C) The benefits of payback analysis usually
outweigh the costs of the analysis. D) Payback is the most desirable of the various
financial methods of analysis E) Payback is focused on the long-term impact of a project
C) accounting return. - Answer-6) A project's average net income divided by its average
book value is referred to as the project's average A) net present value. B) internal rate
of return. C) accounting return. D) profitability index E) payback period
C) The IRR is equal to the required return when the net present is equal to zero. -
Answer-7) Which one of the following statements related to the internal rate of return
(IRR) is correct? A) The IRR yields the same accept and reject decisions as the net
present value method given mutually exclusive projects B) A project with an IRR equal
to the required return would reduce the value of a firm if accepted. C) The IRR is equal
, to the required return when the net present value is equal to zero. D) Financing type
projects should be accepted if the IRR exceeds the required return. E) The average
accounting return is a better method of analysis than the IRR from a financial point of
view.
C) mutually exclusive - Answer-8) If a firm accepts Project the simultaneous and
exclusive use of the same piece of machinery. A it will not be feasible to also accept
Project B because both projects would require These projects are considered to be A)
independent B) interdependent. C) mutually exclusive D) economically scaled. E)
operationally distinct.
E) Modified internal rate of return that exceeds the required return - Answer-9) Which
one of the following is a project acceptance indicator given an independent project with
investing type cash flows? A) Profitability index that is less than 1.0 B) Project's internal
rate of return that is less than the required return C) Discounted payback period that is
greater than the required return D) Average accounting return that is less than the
internal rate of return E) Modified internal rate of return that exceeds the required return
D) Net present value - Answer-10) The final decision on which one of two mutually
exclusive projects to accept ultimately depends upon which one of the following? A)
Initial cost of each project B) Timing of the cash inflows C) Total cash inflows of each
project D) Net present value E) Length of each project's life
C) Accept Project B and reject Project A based on the NPVS - Answer-11) Isaac has
analyzed two mutually exclusive projects that have 3-year lives. Project A has an NPV
of $81,406, a payback period of 2.48 years, and an AAR of 9.31 percent. Project B has
an NPV of $82,909, a payback period of 2.57 years, and an AAR of 9.22 percent. The
required return for Project A is 11.5 percent projects have a required AAR of 9.25
percent. Isaac must make a while it is 12 percent for Project B. Both recommendation
and justify it in 15 words or less. What should his recommendation be? A) Accept both
projects because both NPVS are positive B) Accept Project A because it has the
shortest payback period C) Accept Project B and reject Project A based on the NPVS
D) Accept Project A and reject Project B based on their AARS E) Accept Project A
because it has the lower required return
B) accepted because the profitability index is greater than 1. - Answer-12) When the
present value of the cash inflows exceeds the initial cost of a project, then the project
should be: A) accepted because the payback period is less than the required time
period. B) accepted because the profitability index is greater than 1. C) accepted
because the profitability index is negative. D) rejected because the internal rate of return
is negative. E) rejected because the net present value is positive.
A)-$11,748.69 - Answer-13) A project has a required return of 12.6 percent, an initial
cash $16,500 in Year 1, $11,700 in Year 2, and $10,400 in Year 4. What is the net
present value? outflow of $42,100, and cash inflows of A)-$11,748.69 B)-$10,933.52 C)-
S11,208.62 D)-$10,457.09 E)-$12,006.13
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