Ch 5 - Chapter 05 - Net Present Value and Other Investment...

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Chapter 05 - Net Present Value and Other Investment Rules 5-1 Chapter 05 Net Present Value and Other Investment Rules Answer Key Multiple Choice Questions 1. The difference between the present value of an investment and its cost is the: A. net present value. B. internal rate of return. C. payback period. D. profitability index. E. discounted payback period. Difficulty level: Easy Topic: NET PRESENT VALUE Type: DEFINITIONS 2. Which one of the following statements concerning net present value (NPV) is correct? A. An investment should be accepted if, and only if, the NPV is exactly equal to zero. B. An investment should be accepted only if the NPV is equal to the initial cash flow. C. An investment should be accepted if the NPV is positive and rejected if it is negative. D. An investment with greater cash inflows than cash outflows, regardless of when the cash flows occur, will always have a positive NPV and therefore should always be accepted. E. Any project that has positive cash flows for every time period after the initial investment should be accepted. Difficulty level: Easy Topic: NET PRESENT VALUE RULE Type: DEFINITIONS
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Chapter 05 - Net Present Value and Other Investment Rules 5-2 3. The length of time required for an investment to generate cash flows sufficient to recover the initial cost of the investment is called the: A. net present value. B. internal rate of return. C. payback period. D. profitability index. E. discounted cash period. Difficulty level: Easy Topic: PAYBACK Type: DEFINITIONS 4. Which one of the following statements is correct concerning the payback period? A. An investment is acceptable if its calculated payback period is less than some pre-specified period of time. B. An investment should be accepted if the payback is positive and rejected if it is negative. C. An investment should be rejected if the payback is positive and accepted if it is negative. D. An investment is acceptable if its calculated payback period is greater than some pre- specified period of time. E. An investment should be accepted any time the payback period is less than the discounted payback period, given a positive discount rate. Difficulty level: Easy Topic: PAYBACK RULE Type: DEFINITIONS 5. The length of time required for a project's discounted cash flows to equal the initial cost of the project is called the: A. net present value. B. internal rate of return. C. payback period. D. discounted profitability index. E. discounted payback period. Difficulty level: Easy Topic: DISCOUNTED PAYBACK Type: DEFINITIONS
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Chapter 05 - Net Present Value and Other Investment Rules 5-3 6. The discounted payback rule states that you should accept projects: A. which have a discounted payback period that is greater than some pre-specified period of time. B.
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This note was uploaded on 03/03/2012 for the course ECON 106 taught by Professor Sengupta,j during the Fall '08 term at UCSB.

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Ch 5 - Chapter 05 - Net Present Value and Other Investment...

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