Sample_Quiz_1_Fall_2010_FIN_351[1]

# Sample_Quiz_1_Fall_2010_FIN_351[1] - Sample Quiz 1 FIN 351...

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Sample Quiz 1 FIN 351 Student: ___________________________________________________________________________ 1. What is the NPV of a project that costs \$100,000 and returns \$50,000 annually for three years if the opportunity cost of capital is 14%? A. \$3,397.57 B. \$4,473.44 C. \$16,085.00 D. \$35,000.00 2. Which of the following changes will increase the NPV of a project? A. A decrease in the discount rate B. A decrease in the size of the cash inflows C. An increase in the initial cost of the project D. A decrease in the number of cash inflows 3. When the NPV of an investment is positive, then the IRR will be: A. equal to the opportunity cost of capital. B. greater than the opportunity cost of capital. C. less than the opportunity cost of capital. D. less than or equal to the opportunity cost of capital. 4. Evaluate the following project using an IRR criterion, based on an opportunity cost of 10%: CF 0 = -6,000, CF 1 = +3,300, CF 2 = +3,300. A. Accept, since IRR exceeds opportunity cost. B. Reject, since opportunity cost exceeds IRR. C. Accept, since opportunity cost exceeds IRR. D. Reject, since IRR exceeds opportunity cost. 5. The profitability index for a project costing \$40,000 and returning \$15,000 annually for four years at an opportunity cost of capital of 12% is: A. 1.139 B. 1.320 C. 1.500 D. 1.861

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6. Which of the following statements is true for a project with \$20,000 initial cost, cash inflows of \$5,800 per year for six years, and a discount rate of 15%? A. Its payback period is roughly 3 1/2 years. B. Its NPV is \$2,194. C. Its IRR is 1.85%. D. Its profitability index is 1.109. 7. The NPV of an investment made today is \$10,000. If postponed for one year, the NPV at that time will increase by \$1,000. Which of the following is correct if the opportunity cost of the investment is 12%? A. Postpone; the NPV increases by a positive amount. B. Postpone; the NPV will be larger. C. Invest now; NPV does not grow at a sufficient rate. D. Invest now; always accept positive NPV projects. 8. Which of the following is least likely to influence the opportunity cost of an asset? A. Its current market value. B. Alternative uses for the asset. C. The current demand for the asset. D. Its current book value. 9. In what manner does depreciation expense affect investment projects? A. It reduces cash flows by the amount of the depreciation expense. B. It increases cash flows by the amount of the depreciation expense. C. It reduces taxable income by the amount of the depreciation expense. D. It reduces taxes by the amount of the depreciation expense.
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## Sample_Quiz_1_Fall_2010_FIN_351[1] - Sample Quiz 1 FIN 351...

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