chap007Q - Chapter 7 1. All else constant, the net present...

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Chapter 7 1. All else constant, the net present value of a typical investment project increases when: a. the discount rate increases. b. each cash inflow is delayed by one year. c. the initial cost of a project increases. d. the rate of return decreases. e. all cash inflows occur during the last year of a project’s life instead of periodically throughout the life of the project. 2. The internal rate of return (IRR): I. rule states that a typical investment project with an IRR that is less than the required rate should be accepted. II. is the rate generated solely by the cash flows of an investment. III. is the rate that causes the net present value of a project to exactly equal zero. IV. can effectively be used to analyze all investment scenarios. a. I and IV only b. II and III only c. I, II, and III only d. II, III, and IV only e. I, II, III, and IV 3. Matt is analyzing two mutually exclusive projects of similar size and has prepared the following data. Both projects have 5 year lives. Matt has been asked for his best recommendation given this information. His recommendation should be to accept: a. project B because it has the shortest payback period. b. both projects as they both have positive net present values. c. project A and reject project B based on their net present values. d. project B and reject project A based on their average accounting returns. e. project B and reject project A based on both the payback period and the average accounting return.
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4. In actual practice, managers frequently use the: I. AAR because the necessary accounting numbers are readily available. II. IRR because the results are easy to communicate and understand. III. payback because of its simplicity. IV. net present value because it is considered by many to be the best method of analysis. a. I and III only b. II and III only c. I, III, and IV only d. II, III, and IV only e. I, II, III, and IV 5. You are considering a project with the following data: Which one of the following is correct given this information? a. The discount rate used in computing the net present value must have been less than 8.7%.
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chap007Q - Chapter 7 1. All else constant, the net present...

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