Chapter 11 Practice Exam Q&A

Chapter 11 Practice Exam Q&A - Chapter 11 Test...

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Chapter 11 Test Questions
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Question 1 All else constant, the net present value of a 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 required 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.
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Answer Question 1 NPV is the sum of the PV of all future cash flows (aka CFt / (1+ int)t ) minus the initial outlay. Thus NPV will increase with a decrease in the discount rate, an increase in cash flows, a decrease in the initial outlay, and a speeding up of receiving the cash flows. Answer : D
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Question 2 If a project has a net present value equal to zero, then: I. the present value of the cash inflows exceeds the initial cost of the project. II. the project produces a rate of return that just equals the required rate of return. III. the project will not increase the value of the company. IV. any delay in receiving the projected
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Answer Question 2 NPV is the sum of the PV of all future cash flows (aka CFt / (1+ int)t ) minus the initial
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Chapter 11 Practice Exam Q&A - Chapter 11 Test...

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