Answer
net present value
discounted payback
internal rate of return
profitability index
payback
Correct Feedback
Refer to section 9.1
Incorrect Feedback
Refer to section 9.1
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Question 14
Multiple Choice
Question
If a project has a net present value equal to zero, then:
Answer
the total of the cash inflows must equal the initial cost of the project.
the project earns a return exactly equal to the discount rate.
a decrease in the project's initial cost will cause the project to have a negative NPV.
any delay in receiving the projected cash inflows will cause the project to have a
positive NPV.
the project's PI must be also be equal to zero.
Correct Feedback
Refer to sections 9.1 and 9.6
Incorrect
Feedback
Refer to sections 9.1 and 9.6
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Question 15
Multiple Choice
Question
Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets. When the
project ends, those assets are expected to have an aftertax salvage value of $45,000. How is the $45,000
salvage value handled when computing the net present value of the project?
Answer
reduction in the cash outflow at time zero
cash inflow in the final year of the project
cash inflow for the year following the final year of the project
cash inflow prorated over the life of the project
not included in the net present value
Correct Feedback
Refer to section 9.1
Incorrect Feedback
Refer to section 9.1
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Question 16
Multiple Choice
Question
Which one of the following increases the net present value of a project?
Answer
an increase in the required rate of return
an increase in the initial capital requirement
a deferment of some cash inflows until a later year
an increase in the aftertax salvage value of the fixed assets
a reduction in the final cash inflow
Correct Feedback
Refer to section 9.1
Incorrect Feedback
Refer to section 9.1
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Question 17
Multiple Choice
Question
Net present value:
Answer
is the best method of analyzing mutually exclusive projects.
is less useful than the internal rate of return when comparing different sized projects.
is the easiest method of evaluation for non-financial managers to use.
is less useful than the profitability index when comparing mutually exclusive
projects.
is very similar in its methodology to the average accounting return.

Correct Feedback
Refer to section 9.1
Incorrect
Feedback
Refer to section 9.1
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Question 18
Multiple Choice
Question
Which one of the following is a project acceptance indicator given an independent project with
investing type cash flows?
Answer
profitability index less than 1.0
project's internal rate of return less than the required return
discounted payback period greater than requirement
average accounting return that is less than the internal rate of return
modified internal rate of return that exceeds the required return
Correct Feedback
Refer to sections 9.3 through 9.6
Incorrect Feedback
Refer to sections 9.3 through 9.6
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Question 19
Multiple Choice
Question
Why is payback often used as the sole method of analyzing a proposed small project?

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