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MGNT 3125_Chapter 11_reviewquestions

MGNT 3125_Chapter 11_reviewquestions - MGNT 3125 Fall 2010...

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MGNT 3125 Fall 2010 Dr. Amine Khayati Chapter 11 Review questions 1- A project with a net present value of zero implies that the project: a- does not payback its initial cash outlay b- has an initial cost of zero c- has cash inflows which have a zero present value d- has no expected impact on shareholders wealth. 2- The financial manager of a firm is most concerned with creating value for the firm’s shareholders. Accordingly, the best and consistent method to evaluate all proposed projects is: a- payback rule b- net present value c- the internal rate of return d- the profitability index 3- Which one of the following statement is correct concerning the payback rule? I- the rule can be applied to comparing mutually exclusive projects. II- the rule does not account for the time value of money III- the rule is biased in favor of long-term projects. IV- the rule is flawed because it ignores all cash flows after some arbitrary point in time. a- I and II only b- II and III only c- II and IV only d- II, III and IV only 4- The payback rule is: I- biased toward liquidity II- biased toward short-term projects III- cannot be applied without the use of a required rate of return IV- ignores the initial cost of a project a- I and II only b- I, II and III only c- II and III only d- I, II and IV only 1
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5- The payback period rule works best in evaluating which one of the following? a- High cost project with increasing cash flows over time b- High cost project with equal cash inflows over a long period of time c- low cost project which pays back rapidly d- low cost project which pays back slowly 6- The net present value is best defined as the difference between an investment’s: a- market value and its cost b- cash inflows and its outflows c- cash outflows and its cost d- cash inflows and its cost 7- Which one of the following is correct concerning the internal rate of return method?
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