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The Black Horse is currently considering a project that will produce cash inflows of $12,000 a year for three years followed by $6,500 in year 4.The cost of the project is $38,000.What is the profitability index if the discount rate is 7 percent?


A) 0.96
B) 0.99
C) 1.04
D) 1.09
E) 1.12

F) All of the above
G) A) and B)

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In words,explain how the crossover rate is computed and why the net present value profile is useful.

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The crossover rate is the internal rate ...

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The present value of the benefits of a particular investment happens to equal the initial cost of that investment at the required rate of 14 percent.What is the value of the investment's internal rate of return,its net present value,and its profitability index?

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Since the investment is neithe...

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Which one of the following is true if the managers of a firm accept only projects that have a profitability index greater than 1.5?


A) The firm should increase in value each time the firm accepts a new project.
B) The firm is most likely steadily losing value.
C) The price of the firm's stock should remain constant.
D) The net present value of each new project is zero.
E) The internal rate of return on each new project is zero.

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

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Professional Properties is considering remodeling the office building it leases to Heartland Insurance.The remodeling costs are estimated at $3.4 million.If the building is remodeled,Heartland Insurance has agreed to pay an additional $820,000 a year in rent for the next five years.The discount rate is 15 percent.What is the benefit of the remodeling project to Professional Properties?


A) -$651,233
B) -$489,072
C) $5,214
D) $128,399
E) $311,417

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

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Which one of the following is an indicator that an investment is acceptable?


A) Modified internal rate of return equal to zero
B) Profitability index of zero
C) Internal rate of return that exceeds the required return
D) Payback period that exceeds the required period
E) Negative average accounting return

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

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A project has the following cash flows.What is the internal rate of return? A project has the following cash flows.What is the internal rate of return? A) 12.21 percent B) 12.47 percent C) 13.72 percent D) 14.09 percent E) 14.19 percent


A) 12.21 percent
B) 12.47 percent
C) 13.72 percent
D) 14.09 percent
E) 14.19 percent

F) All of the above
G) A) and C)

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Which one of the following methods of analysis ignores cash flows?


A) Profitability index
B) Net present value
C) Average accounting return
D) Modified internal rate of return
E) Internal rate of return

F) C) and E)
G) B) and C)

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The net present value of an investment represents the difference between the investment's:


A) cash inflows and outflows.
B) cost and its net profit.
C) cost and its market value.
D) cash flows and its profits.
E) assets and liabilities.

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

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Which one of the following statements is correct?


A) A longer payback period is preferred over a shorter payback period.
B) The payback rule states that you should accept a project if the payback period is less than one year.
C) The payback period ignores the time value of money.
D) The payback rule is biased in favor of long-term projects.
E) The payback period considers the timing and amount of all of a project's cash flows.

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

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What is the IRR of the following set of cash flows? What is the IRR of the following set of cash flows? A) 12.93 percent B) 14.90 percent C) 15.81 percent D) 16.33 percent E) 17.78 percent


A) 12.93 percent
B) 14.90 percent
C) 15.81 percent
D) 16.33 percent
E) 17.78 percent

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

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Which one of the following methods of analysis has the greatest bias toward short-term projects?


A) Net present value
B) Internal rate of return
C) Average accounting return
D) Profitability index
E) Payback

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

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If an investment is producing a return that is equal to the required return,the investment's net present value will be:


A) positive.
B) greater than the project's initial investment.
C) zero.
D) equal to the project's net profit.
E) less than, or equal to, zero.

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

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