FINC Final Exam Prediction Questions.

FINC Final Exam Prediction Questions. The net present value of an investment represents the difference between the investment's - CORRECT ANSWER cost and its market value Which of the following indicates that a project is expected to create value for its owners? - CORRECT ANSWER positive net present value Which of the following is generally considered to be the best form of analysis if you have to select a single method to analyze a variety of investment opportunities? - CORRECT ANSWER Net present value Which is the net present value of a project with the following cash flows if the discount rate is 13.6%? Year CAsh FLow 0 -63,600 1 18,200 2 34,600 3 35,900 - CORRECT ANSWER NPV = -$63,600 + $18,200 / 1.136 + $34,500 / 1.136^2 + $35,900 / 1.136^3 NPV = $3,643.38 What is the NPV of the following set of cash flows at a discount rate of zero percent? What if the discount rate is 15%? - CORRECT ANSWER NPV0 percent = -$21,400 + 11,600 / 1.0 + 13,500 / 1.0^2 + 12,200 / 1.0^3 NPV0 percent = $15,900 NPV15 percent = -$21,400 + 11,600 / 1.15 + 13,500 / 1.15^2 + 12,200 / 1.15^3 NPV15 percent = $6,916.59 Which of the following statements is correct - CORRECT ANSWER The payback period ignores the time value of money A project has the following cash flows. What is the payback period? Year CF 0 -28000 1 11600 2 11600 3 6500 4 6500 - CORRECT ANSWER Payback = 2 + ($28,000 -11,600 -11,600)/$6,500 = 2.74 years What is the payback period for a project with the following cash flows? Year CF 0 -75000 1 15000 2 23000 3 35000 4 25000 - CORRECT ANSWER Payback = 3+ ($75,000 -15,000 -23,000 -35,000)/$25,000 = 3.08 years Today, Sweet Snacks is investing $491,000 in a new oven. As a result, the company expects its cashflows to increase by $64,000 a year for the next two years and by $98,000 a year for the following three years. How long must the firm wait until it recovers all of its initial investment? - CORRECT ANSWER -The project never pays back -The project never pays back because the total cash inflow is only $422,000. The internal rate of return is the - CORRECT ANSWER Discount rate that results in a zero net present value for the project Both Projects A and B are acceptable as independent projects. However, the selection of either one of these projects eliminates the option of selecting the other project. Which one of the following terms best describes the relationship between Project A and Project B?He et pre - CORRECT ANSWER mutually exclusive Which of the following is an indicator that an investment is acceptable? Assume cash flows are conventional. - CORRECT ANSWER Internal rate of return that exceeds the required return An investment has conventional cash flows and a profitability index of 1.0. GIven this, which one of the following must be true? - CORRECT ANSWER The net present value is equal to zero. A firm is reviewing a project that has an initial cost of $67,000. The project will produce annual cash inflows, starting with Year 1, of $8,000, $13,400, $18,600, $24,100, and finally in Year 5, $37,900. What is the profitability index if the discount rate is 11 percent? - CORRECT ANSWER PI = ($8,000 / 1.11 + $13,400 / 1.11^2 + $18,600 / 1.11^3 + $24,100 / 1.11^4 + $37,900 / 1.11^5) / $67,000 PI = 1.05