# Study Guide 3 - ViewAttempt1of1 Title Study Guide 3 Started...

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View Attempt 1 of 1 Title: Study Guide 3 Started: July 6, 2011 6:48 PM Submitted: July 14, 2011 5:27 PM Time spent: 190:38:47 Total score: 36/50 = 72% Total score adjusted by 0.0 Maximum possible score: 50 1. The payback period i The payback period is the length of time it takes an investment to generate sufficient cash flows to enable the project to: Student Response A. produce a positive annual cash flow. B. produce a positive cash flow from assets. C. offset its fixed expenses. D. offset its total expenses. E. recoup its initial cost. General Feedback: to section 8.2. Score: 2/2 2. The average net inco The average net income of a project divided by the project's average book value is referred to as the project's: Student Response A. required return. B. market rate of return. C. internal rate of return. D. average accounting return. E. discounted rate of return. General Feedback: to section 8.3. Score: 2/2

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3. Which one of the fol Which one of the following defines the internal rate of return for a project? Student Response A. Discount rate that creates a zero cash flow B. Discount rate which results in a zero net pr for the project C. Discount rate which results in a net present to the project's initial cost D. Rate of return required by the project's inve E. The project's current market rate of return General Feedback: to section 8.4. Score: 2/2 4. Which one of the fol 2 Which one of the following can be defined as a benefit-cost ratio? Student Response A. Net present value B. Internal rate of return C. Profitability index D. Accounting rate of return E. Modified internal rate of return General Feedback: to section 8.5. Score: 2/2 5. What is the net pres What is the net present value of a project with the following cash flows if the discount
rate is 14 percent? Student Response A. \$742.50 B. \$801.68 C. \$823.92 D. \$899.46 E. \$901.15 General Feedback: Score: 2/2 6. What is the payback What is the payback period for a \$27,500 investment with the following cash flows? Student Response A. 3.54 years B. 3.89 years C. 4.22 years D. 4.54 years E. The project never pays back. General Feedback: payback period = 3 + (\$27,500 - \$6,200 - \$7,800 - \$8,600)/\$9,100 = 3.54 years Score: 2/2 7. You are considering You are considering an investment for which you require a 14 percent rate of return. The investment costs \$58,900 and will produce cash inflows of \$25,000 for 3 years. Should you accept this project based on its internal rate of return? Why or why not?

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Student Response A. Yes; because the IRR is 13.13 percent B. Yes; because the IRR is 13.65 percent C. Yes; because the IRR is 13.67 percent D. No; because the IRR is 13.13 percent E. No; because the IRR is 13.65 percent General Feedback: IRR is defined as the interest rate that makes the NPV equal zero. Score:
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## This note was uploaded on 11/17/2011 for the course ECONOMICS 103 taught by Professor Tohmass during the Spring '11 term at University of Houston-Victoria.

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Study Guide 3 - ViewAttempt1of1 Title Study Guide 3 Started...

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