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**Unformatted text preview: **Chapter 08 - Net Present Value and Other Investment Criteria Chapter 08 Net Present Value and Other Investment Criteria Multiple Choice Questions 1. The net present value of an investment represents the difference between the investment's: A. cash inflows and outflows. B. cost and its net profit. C. cost and its market value. D. cash flows and its profits. E. assets and liabilities. 2. Discounted cash flow valuation is the process of discounting an investment's: A. assets. B. future profits. C. liabilities. D. costs. E. future cash flows. 3. The payback period is the length of time it takes an investment to generate sufficient cash flows to enable the project to: 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. 4. The average net income of a project divided by the project's average book value is referred to as the project's: A. required return. B. market rate of return. C. internal rate of return. D. average accounting return. E. discounted rate of return. 8-1 Chapter 08 - Net Present Value and Other Investment Criteria 5. Which one of the following defines the internal rate of return for a project? A. Discount rate that creates a zero cash flow from assets B. Discount rate which results in a zero net present value for the project C. Discount rate which results in a net present value equal to the project's initial cost D. Rate of return required by the project's investors E. The project's current market rate of return 6. The net present value profile illustrates how the net present value of an investment is affected by which one of the following? A. Project's initial cost B. Discount rate C. Timing of the project's cash inflows D. Inflation rate E. Real rate of return 7. The possibility that more than one discount rate can cause the net present value of an investment to equal zero is referred to as: A. duplication. B. the net present value profile. C. multiple rates of return. D. the AAR problem. E. the dual dilemma. 8. Both Projects A and B are acceptable as independent projects. However, the selection of either one of these projects eliminates the option of selecting the other project. Which one of the following terms best describes the relationship between Project A and Project B? A. Mutually exclusive B. Conventional C. Multiple choice D. Dual return E. Crosswise 8-2 Chapter 08 - Net Present Value and Other Investment Criteria 9. Which one of the following can be defined as a benefit-cost ratio? A. Net present value B. Internal rate of return C. Profitability index D. Accounting rate of return E. Modified internal rate of return 10. Which one of the following indicates that a project is expected to create value for its owners? ...

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