Exam+2+Practice (1)

Exam+2+Practice (1) - Sample Questions from Chapters 9, 10,...

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Sample Questions from Chapters 9, 10, 12, 13, and 15 Chapter 09 Use the following information to answer questions 1 through 5. You are analyzing a proposed project and have compiled the following information: Year Cash flow 0 -$145,000 1 $ 33,400 2 $ 70,500 3 $ 82,100 Required payback period 3 years Required return 9.50 percent ________ 1. What is the net present value of the proposed project? a. $6,239.12 b. $6,831.84 c. $8,221.29 d. $8,376.91 ________ 2. What is the discounted payback period? a. 2.68 years b. 2.79 years c. 2.89 years d. 2.95 years ________ 3. Should the project be accepted based on the internal rate of return (IRR)? Why or why not? a. no; The project IRR is greater than the required return. b. no; The project IRR is greater than zero. c. yes; The project IRR is greater than the required return. d. yes; The project IRR is equal to zero. ________ 4. Should the proposed project be accepted based on the profitability index (PI)? Why or why not? a. no; The PI is less than 1.0. b. no; The PI is greater than 1.0. c. yes; The PI is less than 1.0. d. yes; The PI is greater than 1.0. ________ 5. Should the proposed project be accepted based on the payback period? Why or why not? a. yes; The payback period is greater than the required payback period. b. yes; The payback period is less than the required payback period. c. no; The payback period is greater than the required payback period. d. no; The payback period is less than the required payback period. ________ 6. Dew Little Co. is considering opening a new plant to produce lawn mowers. The initial cost of the project is $6 million. This cost will be depreciated straight-line to a zero book value over the 15-year life of the project. The net income of the project is expected to be $137,000 a year for the first four years and $538,000 for years 5 through 15, respectively. What is the average accounting return on this project? a. 12.47 percent b. 13.17 percent c. 14.37 percent d. 15.87 percent ________ 7. Which one of the following indicates a project should be accepted? a. NPV = -$281 b. PI = 1.02 c. IRR = 13.8 percent; Required return = 14.2 percent d. Payback = 3.31 years; Required payback = 3.25 years ________ 8. The point where the net present values of two mutually exclusive projects are equal is referred to as the: a. internal rate of return. b. point of profitability. c. crossover point. d. payback point of equivalency. ACHIEVE. LEAD. SUCCEED. | THE BUSINESS SCHOOL AT GEORGIA TECH Barry Marchman, Ph.D. Room 407 (404) 894-5110 Page 1
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Sample Questions from Chapters 9, 10, 12, 13, and 15 ________ 9. What is the project’s Modified IRR? _________________ _______ 10. For an independent project, NPV: a. is the difference between the project’s cost and its market value. b.generally conflicts with the IRR accept / reject decision.
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Exam+2+Practice (1) - Sample Questions from Chapters 9, 10,...

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