CHAPTER TEN
Multiple Choice Questions
101.
The payback period is best defined as:
a.
the time it takes to receive cash flows sufficient to cover your initial
investment
b.
the time period required for total revenue received to equal the initial
investment
c.
the time period required for the present value of all cash flows to equal the
initial investment
d.
the time period required for the NPV to equal zero
102.
A problem associated with the payback method is:
a.
it usually requires less time than that required by the net present value method
b.
it doesn’t include cash flows after the payback period
c.
it assumes that all cash flows are invested at the cost of capital
d.
it uses the time value of money concept
103.
Calculate the payback period for the following investment:
A machine costs
$100,000 with installation costs of $15,000.
Cash inflows are expected to be
26,000 per year for the next seven years.
a.
greater than 5
b.
3.85 years
c.
5 years
d.
4.42 years
104.
Given the following information, calculate the net present value:
Initial outlay is $50,000; required rate of return is 10%; current prime rate is
12%; and cash inflows for the next 4 years are $60,000, $30,000, $40,000, and
$50,000.
a.
$87,734
b.
$93,542
c.
equal to 0
d.
less than 0
105.
An acceptable net present value has a value:
a.
= or > 0
b.
<0
c.
= or <0
d.
equal to the IRR
116
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106.
The internal rate of return is best described as that discount rate which:
a.
equates the NPV and IRR
b.
makes the NPV equal zero
c.
equals the required rate of return
d.
equates all cash flows to the current market rate
107.
Calculate the IRR for the following investment project:
Initial investment is $75,000; inflows are $20,000 for the next five years;
Required rate of return is 15%. (Round your answer to the nearest whole
percentage)
a.
10%
b.
>15%
c.
14%
d.
9%
108.
If the NPV of a project is $500 and the required rate of return is 8%, the IRR
must be:
a.
>8%
b.
=8%
c.
<8%
d.
>$500
109.
Given the following information, calculate NPV:
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 Spring '10
 Mr.Cula
 Accounting, Revenue, Net Present Value, a. b. c., b. c. d.

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