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You are analyzing the following two mutually exclusive projects and have developed the following information. What is the crossover rate? You are analyzing the following two mutually exclusive projects and have developed the following information. What is the crossover rate? A) 13.17 percent B) 13.33 percent C) 14.32 percent D) 14.96 percent E) 15.20 percent


A) 13.17 percent
B) 13.33 percent
C) 14.32 percent
D) 14.96 percent
E) 15.20 percent

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

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Which of the following statements related to the internal rate of return (IRR) are correct? I. The IRR method of analysis can be adapted to handle non-conventional cash flows. II. The IRR that causes the net present value of the differences between two project's cash flows to equal zero is called the crossover rate. III. The IRR tends to be used more than net present value simply because its results are easier to comprehend. IV. Both the timing and the amount of a project's cash flows affect the value of the project's IRR.


A) I and II only
B) III and IV only
C) I, II, and III only
D) II, III, and IV only
E) I, II, III, and IV

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

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Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project?


A) reduction in the cash outflow at time zero
B) cash inflow in the final year of the project
C) cash inflow for the year following the final year of the project
D) cash inflow prorated over the life of the project
E) not included in the net present value

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

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Which one of the following statements is correct in relation to independent projects?


A) The internal rate of return cannot be used to determine the acceptability of a project that has financing type cash flows.
B) A project with investing type cash flows is acceptable if its internal rate of return exceeds the required return.
C) A project with financing type cash flows is acceptable if its internal rate of return exceeds the required return.
D) The net present value profile is upsloping for projects with both investing and financing type cash flows.
E) Projects with financing type cash flows are acceptable only when the internal rate of return is negative.

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

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You are considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value. You are considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value. Should you accept or reject these projects based on IRR analysis? A) accept Project A and reject Project B B) reject Project A and accept Project B C) accept both Projects A and B D) reject both Projects A and B E) You cannot make this decision based on internal rate of return analysis. Should you accept or reject these projects based on IRR analysis?


A) accept Project A and reject Project B
B) reject Project A and accept Project B
C) accept both Projects A and B
D) reject both Projects A and B
E) You cannot make this decision based on internal rate of return analysis.

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

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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:


A) have two net present value profiles.
B) have operational ambiguity.
C) create a mutually exclusive investment decision.
D) produce multiple economies of scale.
E) have multiple rates of return.

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

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An investment project has an installed cost of $518,297. The cash flows over the 4-year life of the investment are projected to be $287,636, $203,496, $103,802, and $92,556, respectively. What is the NPV of this project if the discount rate is zero percent?


A) $47,306
B) $72,418
C) $91,110
D) $128,415
E) $169,193

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

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Samuelson Electronics has a required payback period of three years for all of its projects. Currently, the firm is analyzing two independent projects. Project A has an expected payback period of 2.8 years and a net present value of $6,800. Project B has an expected payback period of 3.1 years with a net present value of $28,400. Which projects should be accepted based on the payback decision rule?


A) Project A only
B) Project B only
C) Both A and B
D) Neither A nor B
E) Answer cannot be determined based on the information given.

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

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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.

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

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The profitability index is most closely related to which one of the following?


A) payback
B) discounted payback
C) average accounting return
D) net present value
E) modified internal rate of return

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

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You're trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $12 million, which will be depreciated straight-line to zero over its 4-year life. The plant has projected net income of $1,095,000, $902,000, $1,412,000, and $1,724,000 over these 4 years. What is the average accounting return?


A) 10.70 percent
B) 15.63 percent
C) 18.87 percent
D) 21.39 percent
E) 23.05 percent

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

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Which of the following are advantages of the payback method of project analysis? I. works well for research and development projects II. liquidity bias III. ease of use IV. arbitrary cutoff point


A) I and II only
B) I and III only
C) II and III only
D) II and IV only
E) II, III, and IV only

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

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An investment project provides cash flows of $1,190 per year for 10 years. If the initial cost is $8,000, what is the payback period?


A) 3.36 years
B) 5.28 years
C) 6.72 years
D) 8.13 years
E) never

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

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Which one of the following correctly applies to the average accounting rate of return?


A) It considers the time value of money.
B) It measures net income as a percentage of the sales generated by a project.
C) It is the best method of analyzing mutually exclusive projects from a financial point of view.
D) It is the primary methodology used in analyzing independent projects.
E) It can be compared to the return on assets ratio.

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

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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.

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

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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) required rate of return
E) length of each project's life

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

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Blue Water Systems is analyzing a project with the following cash flows. Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 14 percent? Why or why not? Blue Water Systems is analyzing a project with the following cash flows. Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 14 percent? Why or why not? A) Yes; The MIRR is 13.48 percent. B) Yes; The MIRR is 17.85 percent. C) Yes; The MIRR is 21.23 percent. D) No; The MIRR is 5.73 percent. E) No; The MIRR is 17.85 percent.


A) Yes; The MIRR is 13.48 percent.
B) Yes; The MIRR is 17.85 percent.
C) Yes; The MIRR is 21.23 percent.
D) No; The MIRR is 5.73 percent.
E) No; The MIRR is 17.85 percent.

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

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Which of the following are definite indicators of an accept decision for an independent project with conventional cash flows? I. positive net present value II. profitability index greater than zero III. internal rate of return greater than the required rate IV. positive internal rate of return


A) I and III only
B) II and IV only
C) I, II, and III only
D) II, III, and IV only
E) I, II, III, and IV

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

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Explain the differences and similarities between net present value (NPV) and the profitability index.

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The NPV and PI both consider the time va...

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A project has average net income of $5,600 a year over its 6-year life. The initial cost of the project is $98,000 which will be depreciated using straight-line depreciation to a book value of zero over the life of the project. The firm wants to earn a minimum average accounting return of 11.5 percent. The firm should _____ the project because the AAR is _____ percent.


A) accept; 5.71
B) accept; 9.90
C) accept; 11.43
D) reject; 5.71
E) reject; 11.43

F) D) and E)
G) All of the above

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