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Chapter 11 Sample Test Questions

# Chapter 11 Sample Test Questions - Chapter 11 Test...

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Chapter 11 Test Questions Question 1 All else constant, the net present value of a project increases when: a. the discount rate increases. b. each cash inflow is delayed by one year. c. the initial cost of a project increases. d. the required rate of return decreases. e. all cash inflows occur during the last year of a project’s life instead of periodically throughout the life of the project. Answer Question 1 NPV is the sum of the PV of all future cash flows (aka CF t / (1+ int) t ) minus the initial outlay. Thus NPV will increase with a decrease in the discount rate, an increase in cash flows, a decrease in the initial outlay, and a speeding up of receiving the cash flows. Answer : D Question 2 If a project has a net present value equal to zero, then: I. the present value of the cash inflows exceeds the initial cost of the project. II. the project produces a rate of return that just equals the required rate of return. III. the project will not increase the value of the company. IV. any delay in receiving the projected cash inflows will cause the project to have a negative net present value. a. II and III only b. II and IV only c. I, II, and IV only d. II, III, and IV only e. I, II, and III only Answer Question 2 NPV is the sum of the PV of all future cash flows (aka CF t / (1+ int) t ) minus the initial outlay.

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