finance homework mcq

finance homework mcq

Question

2. The net present value method assumes that cash flows from a project are immediately reinvested at a rate of return equal to the discount rate.

True False

3. When using internal rate of return to evaluate investment projects, if the internal rate of return is less than the required rate of return, the project would be accepted.

True False

4. In preference decision situations, a project with a high net present value will always be preferable to a project with a lower net present value.

True False

5. An investment project with a project profitability index of less than zero should ordinarily be rejected.

True False

6. Screening decisions follow preference decisions and seek to rank investment proposals in order of their desirability.

True False

7. The payback period is the length of time it takes for an investment to recoup its initial cost out of the cash receipts it generates.

True False


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9. One strength of the simple rate of return method is that it takes into account the time value of money in computing the return on an investment project.

True False

10. In capital budgeting decisions, a $10,000 decrease in annual cash outflows can be treated as if it is a $10,000 increase in annual cash inflows.

True False

Multiple Choice Questions

11. A project profitability index greater than zero for a project indicates that:

A. the discount rate is less than the internal rate of return.

B. there has been a calculation error.

C. the project is unattractive and should not be pursued.

D. the company should reevaluate its discount rate.


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A. finance homework mcqChoice A

B. Choice B

C. Choice C

D. Choice D

E. Choice E

13. The net present value method assumes that the project's cash flows are reinvested at the: A. internal rate of return.

B. the simple rate of return.

C. the discount rate used in the net present value calculation. D. the payback rate of return.

14. The total-cost approach and the incremental-cost approach to evaluating two competing investment opportunities:

A. are dissimilar in that one deals with net present value and the other deals with internal rate of return.

B. are similar in that they will recommend the same alternative as the best.

C. are dissimilar in that one uses the cost of capital as a discount rate and the other does not. D. are similar in that neither considers the time value of money.

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A. finance homework mcqChoice A

B. Choice B

C. Choice C

D. Choice D

16. Rennin Dairy Corporation is considering a plant expansion decision that has an estimated useful life of 20 years. This project has an internal rate of return of 15% and a payback period of 9.6 years. How would a decrease in the expected salvage value from this project in 20 years affect the following for this project?

finance homework mcq

A. Choice A

B. Choice B

C. Choice C

D. Choice D

E. Choice E

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internal rate of return.

D. does not take into account all of the cash flows from a project.

18. Cresol Corporation has a large number of potential investment opportunities that are acceptable. However, Cresol does not have enough investment funds to invest in all of them. Which calculation would be the best one for Cresol to use to determine which projects to choose?

A. payback period

B. simple rate of return C. net present value

D. project profitability index

19. The payback method measures:

A. how quickly investment dollars may be recovered.

B. the cash flow from an investment.

C. the economic life of an investment.

D. the project profitability of an investment.

20. An investment project that requires a present investment of $210,000 will have cash inflows of "R" dollars each year for the next five years. The project will terminate in five years. Consider the following statements (ignore income tax considerations):

I. If "R" is less than $42,000, the payback period exceeds the life of the project.

II. If "R" is greater than $42,000, the payback period exceeds the life of the project. III. If "R" equals $42,000, the payback period equals the life of the project.

Which statement(s) is (are) true?

A. Only I and II.

B. Only I and III.

C. Only II and III.

D. I, II, and III.

E. none of these.


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22. (Ignore income taxes in this problem.) Sue Falls is the president of Sports, Inc. She is considering buying a new machine that would cost $14,125. Sue has determined that the new machine promises an internal rate of return of 12%, but Sue has misplaced the paper which tells the annual cost savings promised by the new machine. She does remember that the machine has a projected life of 10 years. Based on these data, the annual cost savings are: A. It is impossible to determine from the data given.

B. $1,412.50 C. $2,500.00 D. $1,695.00

23. (Ignore income taxes in this problem.) Joe Flubup is the president of Flubup, Inc. He is considering buying a new machine that would cost $25,470. Joe has determined that the new machine promises an internal rate of return of 14%, but Joe has misplaced the paper which tells the annual cost savings promised by the new machine. He does remember that the machine has a projected life of 12 years. Based on these data, the annual cost savings are: A. It is impossible to determine from the given data.

B. $2,122.50 C. $4,500.00 D. $4,650.00

24. (Ignore income taxes in this problem.) Cuarto Corporation just invested in a project that has an internal rate of return of 24%. This project is expected to generate $44,000 of net cash inflows each year of its 6 year life. The project has no salvage value. What was the initial investment required for this project?

A. $63,360 B. $72,600 C. $132,880 D. $160,000

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intangible benefits have to be to make this a financially acceptable investment?

A. $18,435

B. $30,000

C. $35,000

D. $37,236

26. (Ignore income taxes in this problem.) Given the following data:

finance homework mcq

Based on the data given, the annual cost savings would be:

A. $1,630.00

B. $2,200.00

C. $2,123.89

D. $2,553.89

27. (Ignore income taxes in this problem.) Parks Company is considering an investment proposal in which a working capital investment of $10,000 would be required. The investment would provide cash inflows of $2,000 per year for six years. The working capital would be released for use elsewhere when the project is completed. If the company's discount rate is 10%, the investment's net present value is:

A. $1,290

B. $(1,290)

C. $2,000

D. $4,350


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finance homework mcqThe company's discount rate is 16%, and the machine will be depreciated using the straight-line method. Given these data, the machine has a net present value of:

A. -$26,100

B. -$23,900

C. $0

D. +$26,100

29. (Ignore income taxes in this problem.) The Whitton Company uses a discount rate of 16%. The company has an opportunity to buy a machine now for $18,000 that will yield cash inflows of $10,000 per year for each of the next three years. The machine would have no salvage value. The net present value of this machine to the nearest whole dollar is:

A. $22,460 B. $4,460 C. $(9,980) D. $12,000

30. (Ignore income taxes in this problem.) The following data pertain to an investment:

finance homework mcq

The net present value of the proposed investment is:

A. $3,355

B. $(3,430)

C. $0

D. $621

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B. $3,700

C. $20,500

D. $(34,950)