chap 5 questions from online

chap 5 questions from online - CHAPTER 9 Net Present Value...

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CHAPTER 9 Net Present Value and Other Investment Criteria I. DEFINITIONS NET PRESENT VALUE a 1. The difference between the present value of an investment and its cost is the: a. net present value. b. internal rate of return. c. payback period. d. profitability index. e. discounted payback period. DISCOUNTED CASH FLOW VALUATION b 2. The process of valuing an investment by determining the present value of its future cash flows is called (the): a. constant dividend growth model. b. discounted cash flow valuation. c. average accounting valuation. d. expected earnings model. e. Capital Asset Pricing Model. NET PRESENT VALUE RULE c 3. Which one of the following statements concerning net present value (NPV) is correct? a. An investment should be accepted if, and only if, the NPV is exactly equal to zero. b. An investment should be accepted only if the NPV is equal to the initial cash flow. c. An investment should be accepted if the NPV is positive and rejected if it is negative. d. An investment with greater cash inflows than cash outflows, regardless of when the cash flows occur, will always have a positive NPV and therefore should always be accepted. e. Any project that has positive cash flows for every time period after the initial investment should be accepted. PAYBACK c 4. The length of time required for an investment to generate cash flows sufficient to recover the initial cost of the investment is called the: a. net present value. b. internal rate of return. c. payback period. d. profitability index. e. discounted cash period.
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CHAPTER 9 PAYBACK RULE a 5. Which one of the following statements is correct concerning the payback period? a. An investment is acceptable if its calculated payback period is less than some pre- specified period of time. b. An investment should be accepted if the payback is positive and rejected if it is negative. c. An investment should be rejected if the payback is positive and accepted if it is negative. d. An investment is acceptable if its calculated payback period is greater than some pre- specified period of time. e. An investment should be accepted any time the payback period is less than the discounted payback period, given a positive discount rate. DISCOUNTED PAYBACK e 6. The length of time required for a project’s discounted cash flows to equal the initial cost of the project is called the: a. net present value. b. internal rate of return. c. payback period. d. discounted profitability index. e. discounted payback period. DISCOUNTED PAYBACK RULE d 7. The discounted payback rule states that you should accept projects: a. which have a discounted payback period that is greater than some pre-specified period of time. b. if the discounted payback is positive and rejected if it is negative. c.
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chap 5 questions from online - CHAPTER 9 Net Present Value...

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