FIN 362 Week 5 Quiz

FIN 362 Week 5 Quiz  | Mercer University

Question 1

A project has an initial cost of $27,400 and a market value of $32,600. What is the difference between these two values called?  

·         Net present value.  

·         Discounted payback.   

·         Profitability index.  

·         Payback value. 

·         Internal return.

 Question 2

Which one of the following methods of project analysis is defined as computing the value of a project based on the present value of the project's anticipated cash flows?  

·         Internal rate of return.  

·         Expected earnings model.    

·         Discounted cash flow valuation. 

·         Average accounting return.  

·         Constant dividend growth model.

Question 3

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

·         Internal return period.  

·         Profitability period.  

·         Discounted cash period.    

·         Payback period.  

·         Valuation period.

Question 4

The length of time a firm must wait to recoup, in present value terms, the money it has invested in a project is referred to as the:  

·         Discounted profitability period. 

·         Internal return period.

·         Payback period.  

·         Discounted payback period. 

·         Net present value period.

Question 5

A project's average net income divided by its average book value is referred to as the project's average:  

·         Net present value.  

·         Profitability index.  

·         Accounting return.  

·         Payback period. 

·         Internal rate of return.

 Question 6

The internal rate of return is defined as the:  

·         Maximum rate of return a firm expects to earn on a project.    

·         Discount rate which causes the net present value of a project to equal zero.  

·         Discount rate that equates the net cash inflows of a project to zero.  

·         Discount rate that causes the profitability index for a project to equal zero.  

·         Rate of return a project will generate if the project in financed solely with internal funds.

 Question 7

You are viewing a graph that plots the NPVs of a project to various discount rates that could be applied to the project's cash flows. What is the name given to this graph?  

·         NPV route.  

·         Project tract.  

·         Projected risk profile.    

·         NPV profile.  

·         Present value sequence.

 Question 8

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:  

·         Have operational ambiguity.  

·         Have two net present value profiles.  

·         Produce multiple economies of scale.  

·         Have multiple rates of return.  

·         Create a mutually exclusive investment decision.

Question 9

If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be:  

·         Mutually exclusive.  

·         Operationally distinct.  

·         Interdependent.  

·         Economically scaled. 

·         Independent.

 Question 10

The present value of an investment's future cash flows divided by the initial cost of the investment is called the:  

·         Average accounting return.  

·         Net present value.  

·         Profile period.  

·         Profitability index.  

·         Internal rate of return.

 Question 11

A project has a net present value of zero. Which one of the following best describes this project?  

·         The project has a zero percent rate of return.    

·         The project's cash inflows equal its cash outflows in current dollar terms.  

·         The project requires no initial cash investment.  

·         The summation of all of the project's cash flows is zero. 

·         The project has no cash flows.

 Question 12

Which one of the following will decrease the net present value of a project?  

·         Moving each of the cash inflows forward to a sooner time period.    

·         Increasing the project's initial cost at time zero.  

·         Increasing the amount of the final cash inflow.  

·         Increasing the value of each of the project's discounted cash inflows.  

·         Decreasing the required discount rate.

 Question 13

Which one of the following methods determines the amount of the change a proposed project will have on the value of a firm?  

·         Profitability index.    

·         Net present value.  

·         Internal rate of return.  

·         Payback. 

·         Discounted payback.

 Question 14

If a project has a net present value equal to zero, then:  

·         The project's PI must also be equal to zero.  

·         The total of the cash inflows must equal the initial cost of the project.  

·         Any delay in receiving the projected cash inflows will cause the project to have a positive NPV.    

·         The project earns a return exactly equal to the discount rate.  

·         A decrease in the project's initial cost will cause the project to have a negative NPV.

Question 15

A project has an initial cash outflow of $39,800 and produces cash inflows of $18,304, $19,516, and $14,280 for years 1 through 3, respectively. What is the NPV at a discount rate of 11 percent?  

·         $2,971.13  

·         Negative $1,208.19  

·         $7,675.95  

·         $2,029.09

·         $1,311.16

 Question 16

Project A has an initial cost of $80,000 and provides cash inflows of $34,000 a year for three years. Project B has an initial cost of $80,000 and produces a cash inflow of $114,000 in year 3. The projects are mutually exclusive. Which project(s) should you accept if the discount rate is 11.7 percent? What if the discount rate is 13.5 percent?  

·         Accept A as it always has the higher NPV.  

·         Accept B at .11.7 percent and A at 13.5 percent.    

·         Accept A at 11.7 percent and neither at 13.5 percent.  

·         Accept B as it always has the higher NPV. 

·         Accept A at 11.7 percent and B at 13.5 percent.

 Question 17

The Dry Dock is considering a project with an initial cost of $118,400. The project’s cash inflows for years 1 through 3 are $37,200, $54,600, and $46,900, respectively. What is the IRR of this project?  

·         8.04 percent  

·         8.42 percent  

·         8.22 percent  

·         8.56 percent  

·         7.48 percent

Question 18

Assume a project has cash flows of -$51,300, $18,200, $37,300, and $14,300 for years 0 to 3, respectively. What is the profitability index given a required return of 12.5 percent?  

·         1.09  

·         1.06  

·         .98  

·         1.11  

·         .94

 Question 19

You estimate that a project will cost $27,700 and will provide cash inflows of $11,800 in year 1 and $24,600 in year 3. Based on the profitability index rule, should the project be accepted if the discount rate is 14 percent? Why or why not?  

·         Yes; The PI is .97. 

·         Yes; The PI is 1.06.  

·         No; The PI is .97.  

·         No; The PI is 1.06.  

·         Yes; The PI is .84.

 Question 20

It will cost $6,000 to acquire an ice cream cart. Cart sales are expected to be $3,600 a year for three years. After the three years, the cart is expected to be worthless as the expected life of the refrigeration unit is only three years. What is the payback period?  

·         1.95 years  

·         1.82 years 

·         1.67 years  

·         1.48 years  

·         2.00 years

 Question 21

A project has an initial cost of $18,400 and is expected to produce cash inflows of $7,200, $8,900, and $7,500 over the next three years, respectively. What is the discounted payback period if the required rate of return is 12 percent? 

·         2.91 years  

·         2.31 years  

·         2.45 years  

·         2.55 years  

·         Never

 Question 22

Scott is considering a project that will produce cash inflows of $5,100 a year for 3 years. The project has required rate of return of 14 percent and an initial cost of $6,000. What is the discounted payback period? 

·         2.26 years 

·         never  

·         2.47 years    

·         1.39 years    

·         .91 years

 Question 23

The Green Fiddle is considering a project that will produce sales of $87,000 a year for the next four years. The profit margin is 6 percent, the project cost is $96,000, and depreciation is straight-line to a zero book value over the life of the project. The required accounting return is 11 percent. This project should be _____ because the AAR is _____ percent.  

·         Rejected; 10.88  

·         Accepted; 10.88  

·         Rejected; 10.03  

·         Accepted; 10.03  

·         Rejected; 11.60

 Question 24

A project has cash flows of -$152,000, $60,800, $62,300 and $75,000 for years 0 to 3, respectively. The required rate of return is 13 percent. What is the profitability index? Should you accept or reject the project based on this index value?  

·         1.07 reject  

·         .93; reject  

·         .93; accept 

·         1.02; accept 

·         1.07; accept

 Question 25

A project has cash flows of -$119,000, $52,800, $60,200, and $33,100 for years 0 to 3, respectively. The required rate of return is 12 percent. Based on the net present value of _____, you should _____ the project.  

·         $283.60; accept  

·         $230.75; accept  

·         Negative  $147.60; accept 

·         Negative $306.15; reject  

·         Negative $1,995.84; reject