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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 straightline to a zero book value over the 15year 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) 8945110
Page 1
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View Full DocumentSample 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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 Spring '12
 Marchman

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