6.

,Thedifferencebetweenthemarketvalueofaninvestmentanditscostisthe:
A.,Netpresentvalue.
B.,Internalrateofreturn.
C.,Paybackperiod. D.,Profitabilityindex.

E.,Discountedpaybackperiod.

7.,Theprocessofvaluinganinvestmentbydeterminingthepresentvalueofitsfuturecashflowsiscalled(the):
A.,Constantdividendgrowthmodel.
B.,Discountedcashflowvaluation.
C.,Averageaccountingvaluation.
D.,Expectedearningsmodel. E.,CapitalAssetPricingModel.
8.,Thenetpresentvalue(NPV)rulecanbebeststatedas:
A.,Aninvestmentshouldbeacceptedif,andonlyif,theNPVisexactlyequaltozero.
B.,AninvestmentshouldberejectediftheNPVispositiveandacceptedifitisnegative.
C.,AninvestmentshouldbeacceptediftheNPVispositiveandrejectedifitisnegative.
D.,Aninvestmentwithgreatercashinflowsthancashoutflows,regardlessofwhenthecashflowsoccur,willalwayshaveapositiveNPVandthereforeshouldalwaysbe
accepted.
E.,Aninvestmentshouldbeacceptedifitequalsitsdepreciationvalue.
9.,Thelengthoftimerequiredforaninvestmenttogeneratecashflowssufficienttorecoveritsinitialcostisthe:
A.,Netpresentvalue.
B.,Internalrateofreturn.
C.,Paybackperiod. D.,Profitabilityindex.

E.,Discountedpaybackperiod.

10.,Thepaybackrulecanbebeststatedas:
A.,Aninvestmentisacceptableifitscalculatedpaybackperiodislessthansomeprespecifiednumberofyears.
B.,Aninvestmentshouldbeacceptedifthepaybackispositiveandrejectedifitisnegative.
C.,Aninvestmentshouldberejectedifthepaybackispositiveandacceptedifitisnegative.
D.,Aninvestmentisacceptableifitscalculatedpaybackperiodisgreaterthansomeprespecifiednumberofyears.
E.,Aninvestmentisacceptableifitscalculatedpaybackperiodisequaltoitsdeprecationusefullife.
11.,Thelengthoftimerequiredforaninvestment'sdiscountedcashflowstoequalitsinitialcostisthe:
A.,Netpresentvalue.
B.,Internalrateofreturn.
C.,Paybackperiod. D.,Profitabilityindex.

E.,Discountedpaybackperiod.

12.,Thediscountedpaybackrulecanbebeststatedas:
A.,Aninvestmentisacceptableifitsdiscountedpaybackperiodisgreaterthansomeprespecifiednumberofyears.
B.,Aninvestmentshouldbeacceptedifthediscountedpaybackispositiveandrejectedifitisnegative.
C.,Aninvestmentshouldberejectedifthediscountedpaybackispositiveandacceptedifitisnegative.
D.,Aninvestmentisacceptableifitsdiscountedpaybackperiodislessthansomeprespecifiednumberofyears.
13.,Aninvestment'saveragenetincomedividedbyitsaveragebookvalueisthe:
A.,Netpresentvalue.
B.,Internalrateofreturn.
C.,Averageaccountingreturn. D.,Profitabilityindex.

E.,Paybackperiod.

14.,Theaverageaccountingreturn(AAR)rulecanbebeststatedas:
A.,AninvestmentisacceptableifitsAARislessthanatargetAAR.
B.,AninvestmentisacceptableifitsAARexceedsatargetAAR.
C.,AninvestmentisacceptableifitsAARexceedsthefirm'sreturnonequity(ROE).
D.,AninvestmentisacceptableifitsAARislessthanthefirm'sreturnonassets(ROA).
15.,Thediscountratethatmakesthenetpresentvalueofinvestmentexactlyequaltozeroisthe:
A.,Paybackperiod. B.,Internalrateofreturn.
C.,Averageaccountingreturn. D.,Profitabilityindex.

E.,Discountedpaybackperiod.

16.,Completethefollowingdecisionrule:Aprojectshouldbeacceptedifits______exceedsthefirm'srequiredrateofreturn.
A.,IRR B.,NPV C.,payback
D.,discountedpayback
E.,AAR
17.,Theinternalrateofreturn(IRR)rulecanbebeststatedas:
A.,AninvestmentisacceptableifitsIRRisexactlyequaltoitsnetpresentvalue(NPV).
B.,AninvestmentisacceptableifitsIRRisexactlyequaltozero.
C.,AninvestmentisacceptableifitsIRRislessthantherequiredreturn,orelseitshouldberejected.
D.,AninvestmentisacceptableifitsIRRexceedstherequiredreturn,orelseitshouldberejected.
E.,AninvestmentisacceptableifitsIRRexceedsitsdepreciationrate.
18.,ThepossibilitythatmorethanonediscountratewillmaketheNPVofaninvestmentzeroiscalledthe___________problem.
A.,netpresentvalueprofiling B.,operationalambiguity
C.,mutuallyexclusiveinvestmentdecisions D.,issuesofscale

E.,multipleratesofreturn

19.,Asituationinwhichtakingoneinvestmentpreventsthetakingofanotheriscalled:
A.,Netpresentvalueprofiling. B.,Operationalambiguity.
C.,Mutuallyexclusiveinvestmentdecisions.D.,Issuesofscale.E.,Multipleratesofreturn.
20.,Thepresentvalueofaninvestment'sfuturecashflowsdividedbyitsinitialcostisthe:
A.,Netpresentvalue.
B.,Internalrateofreturn.
C.,Averageaccountingreturn. D.,Profitabilityindex.

E.,Paybackperiod.

21.,Theprofitabilityindex(PI)rulecanbebeststatedas:
A.,AninvestmentisacceptableifitsPIisgreaterthanone.
B.,AninvestmentisacceptableifitsPIislessthanone.
C.,AninvestmentisacceptableifitsPIisgreaterthantheinternalrateofreturn(IRR).
D.,AninvestmentisacceptableifitsPIislessthanthenetpresentvalue(NPV).
E.,AninvestmentisacceptableifitsPIislessthanitspayback.
22.,Netpresentvaluecanbedefinedas:
A.,Therateofreturnthatcausesthepresentvalueofallcashflowsassociatedwithaprojecttoequalzero.
B.,Thediscountratethatcausesthecurrentvalueofcashinflowstoexceedthecurrentvalueofcashoutflows.
C.,Ameasureofthevaluecreatedoraddedtodaybyundertakingaproject. D.,Thecashoutflowsfromaprojectsubtractedfromthecashinflowsfortheproject.
E.,Thenetcostsofaprojectsubtractedfromthenetincomegeneratedfromtheproject.
23.,Thecrossoverpointisdefinedasthediscountratethat:
A.,Causesthenetpresentvalueofaprojecttoequalzero.

B.,CausestheIRRofoneprojecttoexceedtheIRRofasecondproject.

C.,IndicatesthepointwheretheIRRequalszeroasIRRmovesinadownwarddirection.
E.,Causesaprojecttomovefromapositivenetpresentvaluetoanegativenetpresentvalue.

D.,Makesthenetpresentvaluesoftwoprojectsequal.

24.,Theprinciplethataninvestmentshouldbeacceptedifthedifferencebetweentheinvestment'smarketvalueanditscostispositiveandrejectedifthedifferenceisnegativeis
referredtoasthe:
A.,Averageaccountingreturnrule.B.,Internalrateofreturnrule.
C.,Profitabilityindexrule.
D.,Discountedpaybackrule.
E.,Netpresentvaluerule.
25.,Averageaccountingreturnisdefinedas:
A.,Averagenetincomedividedbyaveragebookvalue.
B.,Averagecashinflowdividedbyaveragecashoutflow.
C.,Averagesalesdividedbyaveragetotalassets.D.,Averagenetincomedividedbyaverageprojectcost.E.,Averagecashinflowdividedbyaveragebookvalue.
26.,Thediscountedpaybackperiodisbestdefinedasthelengthoftimeuntilthe:
A.,Sumofthediscountedcashflowsisequaltotheaveragebookvalue.
B.,Sumofthediscountedcashflowsisequaltotheinitialinvestment.
C.,Sumofthecashinflowsisequaltothesumofthecashoutflows.
D.,SumofthediscountedcashflowsfromprojectAequalsthesumofthediscountedcashflowsfromprojectB.
E.,Sumofthediscountednetincomeisequaltothecostoftheproject.
27.,Bydefinition,thenetpresentvalueisequaltozerowhenthediscountrateisequaltothe:
A.,Averageaccountrateofreturn.
B.,Rateusedinthediscountedpaybackformula.
D.,Internalrateofreturn.
E.,Crossoverrate.

C.,Profitabilityindexrate.

28.,Whenthedecisiontoacceptorrejectoneprojectdoesnotaffectthedecisiontoacceptorrejectanyotherproject,theprojectissaidtobe:
A.,Mutuallyexclusive.
B.,Mutuallyinclusive.
C.,Independent.
D.,Acrossoverproject.
E.,Acceptable.
29.,Thepresentvaluecreatedperdollarinvestediscalledthe:
A.,Netpresentvalue.
B.,Profitabilityindex.

C.,Internalrateofreturn.

D.,Accountingreturn.

E.,Discountedpayback.

30.,Aconventionalcashflowisdefinedasaseriesofcashflowswhere:
A.,Thetotalofthecashflowsispositive. B.,Allofthecashflowsarepositive.
C.,Thesumofthecashflowsisequaltozero.
D.,Thepresentvalueofthecashflowsisequaltozero.
E.,Onlytheinitialcashflowisnegative.
31.,Thelengthoftimeneededtorecovertheinitialinvestmentoncetimevalueofmoneyisconsiderediscalledthe:
A.,Discountedpaybackperiod.B.,Averageaccountingreturnperiod.
C.,Discountednetpresentvalueperiod.D.,Paybackperiod.E.,Internaltimeinterval.
32.,Whichofthefollowingquestionsareaddressedinthecapitalbudgetingprocess?
I.Whatproductsorserviceswillweofferorsell?
II.Inwhatmarketswillwecompete?
III.Whatnewproductswillweintroduce?
A.,Ionly
B.,IIIonly
C.,IandIIonly
D.,IandIIIonly

E.,I,II,andIII

33.,Theessenceof____________isdeterminingwhetheraproposedinvestmentorprojectwillgeneratepositivewealthfortheownersofthefirmonceitisinplace.
A.,Capitalbudgeting.
B.,Internalrateofreturnanalysis.
C.,Cashflowanalysis.
D.,Paybackanalysis. E.,Theprofitabilityindex.
34.,WhichofthefollowingisNOTcorrect?
A.,NPVisoneofthetwoorthreemostimportantconceptsinfinance.
B.,NPVisalwaysjustthedifferencebetweenthemarketvalueofanassetorprojectanditscost.
C.,Thefinancialmanageractsintheshareholders'bestinterestsbyidentifyingandtakingpositiveNPVprojects.
D.,NPV'scannormallybedirectlyobservedinthemarket.
E.,InvestmentcriteriaotherthanNPVprovideadditionalinformationaboutwhetherornotaprojecttrulyhasapositiveNPV.
35.,Netpresentvalue______.
A.,Isequaltotheinitialinvestmentinaproject
B.,Comparesprojectcosttothepresentvalueoftheprojectbenefits
C.,IsequaltozerowhenthediscountrateusedislessthantheIRR
D.,Issimplifiedbythefactthatfuturecashflowsareeasytoestimate
E.,Requiresthefirmsetanarbitrarycutoffpointfordeterminingwhetheraninvestmentisacceptable
36.,AnNPVofzeroimpliesthataninvestment's____________.
A.,Costexceedsthepresentvalueofitscashinflows
B.,Costisequaltothepresentvalueofitscashinflows
C.,IRRisgreaterthanthefirm'srequiredrateofreturn
D.,Presentvalueofcashinflowsarepositive
E.,Presentvalueofcashinflowsexceedthe
investment'scost
37.,The__________decisionruleisconsideredthe"best"inprinciple.
A.,Internalrateofreturn
B.,Paybackperiod
C.,Averageaccountingreturn

D.,Netpresentvalue

38.,_________quantifies,indollarterms,howstockholderwealthwillbeaffectedbyundertakingaproject.
A.,Discountedpaybackanalysis.
B.,Theaverageaccountingreturn.
C.,Theinternalrateofreturn.
E.,Theprofitabilityindex.

E.,Profitabilityindex

D.,Netpresentvalue.

39.,Iftherequiredreturniszero,then:
A.,Thepaybackperiodexceedsthediscountedpaybackperiod.
B.,TheNPVequalsthedifferencebetweentheundiscountedfuturecashflowsandtheinitialcost.C.,IftheNPVisnegative,theIRRwillbegreaterthanzero.D.,ThePI
willbelessthanone. E.,TheprojectwillbeacceptableaccordingtotheAARcriteria.
40.,AprojectwhoseNPVequalszero______________.
A.,shouldberejected
B.,hasaprofitabilityindexthatisgreaterthanone

C.,isexpectedtoearnareturnequaltothefirm'srequiredreturn

D.,hasadiscountedpaybackperiodthatisshorterthanthelifeoftheproject E.,shouldbeacceptedevenifthefirmhasalternativeinvestmentswithpositiveNPVs
41.,Yourunasmallbagelshopandareconsideringreplacingyourfouremployeeswithautomatedmachinesthatallowcustomerstobuytheirbagelswithoutanyhuman
interaction.Ofthefollowing,themostdifficulttaskyoufaceincomputingtheNPVofthischangeisthe:
A.,estimationofthereductioninwagesyouwillhavefromthedecreaseinworkforce.
B.,estimationofthereductionintaxesyouwillgetfromtheincreaseindepreciation.
C.,estimationofthecostofpurchasingthenewequipment.
D.,estimationofthecostofinstallingthenewequipment.
E.,estimationofthetotalchangeinsalesthatwillresultfromthechange.
42.,Afinancialmanagerwhoconsistentlyunderestimatesthe___________willtendtoincorrectlyrejectprojectsthatwouldactuallycreatewealthforthestockholders.
A.,marginalincometaxrate
B.,initialcostofprojects
C.,futurecashoutlaysassociatedwithprojects
D.,requiredreturnonprojects
E.,futurecashinflowsassociatedwithprojects
43.,Whichofthefollowingdecisionrulesisbestforevaluatingprojectsforwhichcashflowsbeyondaspecifiedpointintime,andthetimevalueofmoney,canbothbe
ignored?
A.,Payback
B.,Netpresentvalue
C.,Averageaccountingreturn D.,Profitabilityindex
E.,Internalrateofreturn
44.,Afirmseekstoacceptprojectswithahighdegreeofliquidity,avoidthehigherforecastingerrorassociatedwithcashflowsoccurringinthedistantfuture,andavoidprojects
thatrequirealargeamountofresearchanddevelopmentexpenses.Thisfirmmaybejustifiedinusingthe____________toevaluateitsprojects.
A.,IRRrule
B.,NPVrule
C.,AARrule
D.,paybackrule
E.,PIrule
45.,Ifafirmusesthe_____________asaninvestmentcriterion,oneoftherisksittakesisthatitmayignoresomefuturecashflows.
A.,AAR
B.,NPV
C.,IRR
D.,profitabilityindex
E.,paybackrule
46.,Whichofthefollowingusesanarbitrarycutoffnumberinitsdecisionrule?
I.Paybackperiod
II.AAR
III.IRR
A.,Ionly B.,IIonly
C.,IIIonly
D.,IandIIonly
E.,IIandIIIonly
47.,Whichcapitalinvestmentevaluationtechniqueisdescribedbythefollowingcharacteristics?(1)Easytounderstand;(2)Biasedtowardsliquidity;(3)Requiresanarbitrary
cutoffpoint;(4)Ignoresthetimevalueofmoney.
A.,NPV
B.,IRR
C.,Profitabilityindex
D.,Paybackperiod E.,Discountedpayback
48.,ForwhichcapitalinvestmentevaluationtechniqueisthefollowingacompletelistofitsdisadvantageswhencomparedtoNPVanalysis?(1)Ignorescashflowsbeyondthe
cutoffdate;(2)Requiresanarbitrarycutoffpoint;(3)Biasedagainstlongtermprojects;(4)MayrejectpositiveNPVprojects.
A.,NPV
B.,IRR
C.,AAR
D.,Paybackperiod E.,Discountedpayback
49.,Whichofthefollowingisacorrectstatement?
A.,TheIRRisconsideredtobethemostimportantprojectanalysistechnique.
C.,Discountedpaybackanalysisrequiresuseofadiscountrate.
E.,Regularpaybackanalysisispreferabletodiscountedpaybackanalysis.

B.,TheAARisconsideredpreferabletothePI.
D.,ItisreasonabletouseIRRtoanalyzemutuallyexclusiveinvestments.

50.,Whichofthefollowingistrueaboutusingdiscountedpaybackanalysisforprojectswhichhaveonlypositivecashflowsaftertheinitialoutlayandforwhichthediscountrate
ispositive?
A.,Discountedpaybackisbetterthansimplepaybackbecauseinsimplepaybackanalysisthecutoffpaybackperiodisarbitrarilysetbymanagement
B.,AnyprojectthatfailstopaybackatallonadiscountedbasismusthaveapositiveNPV
C.,Whencomparingtwoprojects,theonewithshorterpaybackperiodonadiscountedbasiswillhavealargerNPV
D.,Discountedpaybackismuchsimplertocalculatethanregularpayback
E.,Thediscountedpaybackperiodwillbelongerthantheregularpaybackperiod

51.,Whichofthefollowingdecisionruleshastheadvantagethattheinformationneededforthecalculationisreadilyavailable?
A.,Netpresentvalue B.,Internalrateofreturn
C.,Averageaccountingreturn
D.,Paybackperiod E.,Discountedpayback
52.,Whichofthefollowingisconsideredtobearedeemingfeatureofaverageaccountingreturnanalysis?
A.,Itincorporatestimevalueofmoney.
B.,Estimationoftheappropriatecutoffrateisstraightforwardandeasy.
C.,Calculationreliesonnetincomeandnotcashflowsorassetvalues.
D.,Calculationreliesonbookvaluesandnotmarketvaluesorcashflows.
E.,Itisrelativelyeasytocalculate.
53.,WhichofthefollowingdoesNOTincorporatediscountedcashflow(DCF)valuationinitscalculation?
A.,Discountedpayback
B.,Profitabilityindex
C.,Netpresentvalue
D.,Internalrateofreturn
54.,WhichofthefollowingiscalculatedusingONLYaccountingnumbers?
A.,Paybackperiod B.,Profitabilityindex
C.,Netpresentvalue

D.,Internalrateofreturn

E.,Averageaccountingreturn

E.,Averageaccountingreturn

55.,Whichcapitalinvestmentevaluationtechniqueoffersthefollowingadvantages?(1)Easytocalculate;(2)Neededinformationwillusuallybeavailable.
A.,NPV
B.,IRR
C.,AAR
D.,Paybackperiod E.,Discountedpayback
56.,Tofindthe__________webeginbysettingtheNPVofaprojectequaltozero.
A.,paybackperiod B.,discountedpaybackperiod C.,internalrateofreturn

D.,profitabilityindex

E.,averageaccountingreturn

57.,Whichcapitalinvestmentevaluationtechniqueisdescribedbythefollowingcharacteristics?(1)Easytounderstandandcommunicate;(2)Mayresultinmultipleanswers;(3)
Mayleadtoincorrectdecisionswhenappliedtomutuallyexclusiveinvestments.
A.,NPVB.,IRR
C.,AAR D.,Paybackperiod E.,Discountedpayback

58.,Aprojectwhichhasaninitialcashoutlay,withallfuturecashflowspositive,issaidtobe:
A.,Independent.
B.,Conventional. C.,Mutuallyexclusive.
D.,Valuecreating.

E.,Shortterm.

59.,WhichofthefollowingcancauseaprojecttohavemultipleIRRs?
A.,Theprojecthasalargeinitialoutlay.
B.,Atenyearprojecthasanegativecashflowinthelastyearoftheproject'slife.
C.,Aprojecthasnegativecashflowsinthefirstthreeyears,butpositivecashflowsthereafter.
D.,Wheneverprojectcashflowsareconventional.
E.,Withmutuallyexclusiveinvestments.
60.,Yourfirm'sCFOpresentsyouwithtwocapitalbudgetinganalyses:onethatinvolvesbuyinganewdeliverytrucktoreplacetheexistingtruckandonethatinvolvesthe
purchaseofathreetonmetalstampingpresstoreplacetheexistingpressontheplantfloor.Thisisanexampleofadecisioninvolving_______________.
A.,mutuallyexclusiveprojects
B.,crossoverprojects
C.,paybackprojects D.,independentprojects
E.,workingcapitalprojects
61.,Theuseofwhichofthefollowingcouldleadtoincorrectdecisionswhencomparingmutuallyexclusiveinvestments?
I.Internalrateofreturn
II.Profitabilityindex
III.Averageaccountingreturn
A.,Ionly
B.,IIonly
C.,IIIonly
D.,IandIIonly
E.,IandIIIonly
62.,Yourfirmneedstobuyametalstampingpress.TheCFOpresentsyouwithtwoanalyses:oneforapressthatisautomated,requiringlittlelabourtooperate,andanotherthat
ismanual,requiringasignificantamountoflabour.Thisisanexampleofadecisioninvolving______________.
A.,independentprojects
B.,workingcapitalprojects
C.,positiveNPVprojects
D.,crossoverprojects
E.,mutuallyexclusiveprojects
63.,IncomparingtwoprojectsusinganNPVprofile,atthepointwherethenetpresentvalueoftheprojectsinvolvedareequal,______________________.
A.,theIRRofeachisequaltozero
B.,theIRRofeachisequaltothecostofcapital
C.,thediscountratethatequatesthemiscalledthecrossoverrate
D.,theprojectsbothhaveNPVsequaltozero
E.,theAARexceedsthecostofcapital
64.,RankingconflictscanariseifonereliesonIRRinsteadofNPVwhen:
A.,Thefirstcashflowisnegativeandtheremainingcashflowsarepositive.
C.,AprojecthasmorethanoneNPV.
D.,Projectsaremutuallyexclusive.

B.,Projectsareindependentofoneanother.
E.,Theprofitabilityindexisgreaterthanone.

65.,InwhichofthefollowingcasescanNPVandIRRleadtodifferentdecisions?
I.Projectcashflowsareconventional.
II.TheIRRisnegative.
III.Aninvestmentdecisioninvolvesmutuallyexclusivechoices.
A.,Ionly
B.,IIIonly
C.,IandIIonly
D.,IandIIIonly

E.,IIandIIIonly

66.,Consideraprojectwithaninitialinvestmentandpositivefuturecashflows.Asthediscountrateisincreasedthe___________________.
A.,IRRremainsconstantwhiletheNPVincreases
B.,IRRdecreaseswhiletheNPVremainsconstant
C.,IRRremainsconstantwhiletheNPVdecreases D.,IRRincreaseswhiletheNPVremainsconstant
E.,IRRdecreaseswhiletheNPVdecreases
67.,AmanagerwillprefertheIRRruleovertheNPVruleifthemanager:
A.,Preferstotalkintermsofratesofreturn.
B.,Canaccuratelyforecastfuturecashflows.
D.,Alsoprefersuseofpaybackanalysis.
E.,Isconsideringmutuallyexclusiveprojects.
68.,Whichofthefollowingcalculationstakesthetimevalueofmoneyintoaccount?
I.Payback
II.Averageaccountingreturn
III.Profitabilityindex
A.,Ionly
B.,IIonly
C.,IIIonly
D.,IandIIIonly

C.,Dislikesthediscountedpaybackanalysis.

E.,IIandIIIonly

69.,Ifaninvestmenthasa(n)___________of1.2itcanbesaidthattheinvestmentgenerates$1.20inpresentvaluebenefitsforeachdollarofinvestedcosts.
A.,profitabilityindex
B.,netpresentvalue C.,internalrateofreturn
D.,paybackperiod E.,averageaccountingreturn
70.,Iffinancialmanagersonlyinvestinprojectsthathaveaprofitabilityindexgreaterthanone:
I.firmvaluewillbemaximized.
II.shareholderwealthwillbemaximized.
III.sharepricewillbemaximized.
A.,Ionly
B.,IIonly
C.,IIIonly
D.,IandIIIonly

E.,I,II,andIII

71.,Ifaprojectwithconventionalcashflowshasaprofitabilityindexlessthanone,then:
A.,TheIRRisgreaterthantherequiredreturn.
B.,Thediscountedpaybackperiodisgreaterthantheproject'slife.
C.,TheAARisgreaterthantherequiredreturn.
D.,Thepaybackperiodislessthanthemaximumacceptableperiod.
E.,TheNPVispositive.
72.,Whichcapitalinvestmentevaluationtechniqueisdescribedbythefollowingcharacteristics?(1)CloselyrelatedtoNPV;(2)Easytounderstandandcommunicate;(3)May
leadtoincorrectdecisionswhencomparingmutuallyexclusiveinvestments;(4)Maybeusefulwhentheavailableinvestmentfundsarelimited.
A.,NPV B.,IRR C.,AAR D.,Paybackperiod E.,PI
73.,Rankthefollowingdecisionrulesfromworsttobestintermsoftheiroverallusefulnessincapitalbudgetinganalysis.
I.NPV
II.Payback
III.IRR
A.,II,III,I
B.,II,I,III
C.,III,I,II
D.,I,III,II
E.,III,II,I
74.,Foraprojectwithconventionalcashflows,ifNPVisgreaterthanzero,then:
A.,TheIRRisequaltothefirm'srequiredrateofreturn.
B.,Theprofitabilityindexisgreaterthan1.
C.,Thepaybackperiodisfasterthanthefirm'srequiredcutoffpoint.
D.,TheAARexceedstheIRR.

E.,Theprojectdoesnotpaybackonadiscountedpaybackbasis.
75.,Whichofthefollowingis(are)biasedinfavourofliquidinvestments?
I.Paybackperiod
II.AAR
III.Discountedpayback
A.,Ionly
B.,IIIonly
C.,IandIIonly
D.,IandIIIonly

E.,I,II,andIII

76.,Theuseofwhichofthefollowingcouldleadtoincorrectdecisionsincomparingmutuallyexclusiveinvestments?
I.Internalrateofreturn
II.Profitabilityindex
III.Averageaccountingreturn
A.,Ionly
B.,IIonly
C.,IIIonly
D.,IandIIonly
E.,IandIIIonly
77.,WhichofthefollowingisNOTatruestatement?
A.,Thepaybackruleignoresthetimevalueofmoney.
B.,Thediscountedpaybackrulerequiresacutoffhurdlebeset.
C.,Theprofitabilityindexiscloselyrelatedtothepaybackperiod.
D.,TheAARisbasedonaccountingdata.
78.,Aprojecthasarequiredreturnof15%andafiveyearlife.Whichofthefollowingisinconsistentwiththeotherfour?
A.,Thediscountedpaybackisfiveyears B.,PI=0 C.,NPV=$0
D.,IRR=15%E.,Thepresentvalueofthefuturecashflowsequalstheinitialoutlay
79.,Whichofthefollowingstatementsisfalse?
A.,Ifaprojecthasaprofitabilityindexgreaterthanonetheprojectshouldbeaccepted.
B.,Ifafirm'stargetaverageaccountingreturnislessthanthatcalculatedforagivenprojectthentheprojectshouldbeaccepted.
C.,IfthecostofcapitalisgreaterthantheIRR,theprojectshouldbeaccepted.
D.,Ifaprojecthasapaybackwhichisfasterthanthecompanyrequirestheprojectshouldbeaccepted.
E.,IftheNPVofaprojectispositive,itshouldbeaccepted.
80.,WhichofthefollowingwillNOTleadtoambiguousdecisionmakingwhenconsideringmutuallyexclusiveprojects?
I.AAR
II.PI
III.IRR
IV.NPV
A.,Ionly
B.,IIandIIIonly
C.,IIandIVonly
D.,IandIVonly
E.,IVonly
81.,Accordingtothecapitalbudgetingsurveyscitedinthetext,ingeneral,mostfinancialmanagersoflargeCanadianfirms:
A.,Prefertorelyexclusivelyonpaybackanalysistoevaluateprojects.
B.,UsetheAARastheirprimarymethodofevaluatingcapitalbudgetingprojects.
C.,Whousepaybackanalysisuseitonlyinconjunctionwithsomeothertypeofanalysis.
D.,PrefertouseNPVorIRRtoanalyzetheirinvestmentprojects.
E.,Makeuseofpaybackanalysismoreheavilythandiscountedcashflowmethods.
82.,Theinternalrateofreturnonaprojectis11.24%.Whichofthefollowing(is)aretrueiftheprojectisassigneda9.5%discountrate?
I.Theprojectwillhaveanegativenetpresentvalue.
II.Theprofitabilityindexwillbegreaterthan1.0.
III.Theinitialinvestmentislessthanthemarketvalueoftheproject.
IV.Theprojectwillhaveapositiveeffectonshareholdersifitisaccepted.
A.,Ionly
B.,IIandIVonly
C.,IandIIIonly
D.,IIandIIIonly
E.,II,III,andIVonly
83.,Theprimaryideabehindthenetpresentvalueruleisthataninvestment:
A.,Isworthwhileifitcreatesvaluefortheowners.
B.,Musthavetotalcashflowsthatequalzero.
C.,Shouldbeacceptedifitenhancesmanagement'sposition.
D.,Shouldbreakevenfromanaccountingpointofview.
E.,Shouldearnarateofreturnthatislessthanthediscountrate.
84.,Generally,themostdifficultpartofutilizingthenetpresentvalueconceptis:
A.,Determiningtheinitialcashoutflowrequiredtostartaproject. B.,Computingthenetpresentvalueoncethediscountrateandcashflowsaredetermined.
C.,Determiningwhetherthediscountrateusedishigherorlowerthantheinternalrateofreturn.
D.,Estimatingthefuturecashflowsgiventheinitialinvestmentintheproject.
E.,Makingtheaccept/rejectdecisiononcethenetpresentvalueiscomputed.
85.,Anadvantageofthepaybackmethodisits:
A.,Timevalueofmoneyconsiderations. B.,Applicationofreadilyavailableaccountingdata.
E.,Simplicity.

C.,Cutoffpoint.

D.,Longtermperspective.

86.,Thepaybackmethod:
A.,Entailsdifficultcomputations.
B.,Isprejudicedtowardsshorttermprojects.
C.,Alwaysappliesatenyearcutoffpointforcashflows.
D.,Adjustsfortherisklevelinherentinaproject.
E.,Isgenerallyusedonlyforlargeprojects.
87.,Whichofthefollowingstatementsis(are)trueconcerningthecomparisonbetweenpaybackanddiscountedpayback?
I.Fromafinancialpointofview,thediscountedpaybackmethodispreferredoverthepaybackmethod.
II.Thediscountedpaybackismoredifficulttocomputeandthusisnotaswidelyusedasthepaybackmethod.
III.Bothmethodsarebiasedtowardsliquidity.
IV.Bothmethodsconsiderthetimevalueofmoney.
A.,IandIIIonly
B.,IIandIVonly
C.,IandIIonly
D.,I,II,andIIIonly
E.,I,II,III,andIV
88.,Whichoneofthefollowingstatementsiscorrectconcerningtheaverageaccountingreturn(AAR)?
A.,TheaveragebookvalueusedintheAARformulawillalwaysequalonehalfoftheinitialinvestmentaslongasstraightlinedepreciationoverthelifeoftheproject
isused.

B.,Theaveragenetincomeisthesameasthetotalcashflowsfromtheprojectminustheinitialcashoutflowtostarttheproject.
C.,TheAARissimilartotheprofitabilityindexinthatbotharebasedonaccountingvaluesratherthanfinancialcashflows.
D.,UndertheAARrule,aprojectshouldbeacceptedifthetargetedAARisgreaterthantheproject'sAAR.
E.,TheAARisatruefinancialrateofreturn,whichisrelativelyeasytocompute.
89.,Whichofthefollowingstatementsis(are)trueconcerningtheinternalrateofreturn(IRR)?
I.TheIRRisthemostwidelyusedcapitalbudgetingtechnique.
II.TheIRRmethodcanproducemultipleratesofreturnifthecashflowsarenonconventional.
III.IftheIRRrateisusedasthediscountrate,thentheresultingprofitabilityindexmustequal1.0.
IV.ThecrossoverpointoccurswheretheIRRoftwoprojectsareequal.
A.,IIonly
B.,IIandIIIonly
C.,IIandIVonly
D.,I,II,andIIIonly
E.,I,II,andIVonly
90.,Astherequiredrateofreturnincreases,the:
A.,Netpresentvalueincreases.
B.,Paybackperioddecreases.
D.,Discountedpaybackperioddecreases. E.,Averageaccountingreturndecreases.

C.,Profitabilityindexdecreases.

91.,Aprojectshouldbeacceptedwhenthe:
A.,Profitabilityindexislessthan1.0.
B.,AARislessthanthetargetedAAR.
C.,Netpresentvalueisnegative.
D.,IRRexceedstherequiredrate.
E.,Paybackperiodisgreaterthantheprescribednumberofyears.
92.,Thepaybackmethodassumesthatthecashflows:
A.,Areanannuitystream.
B.,Occurevenlythroughouttheyear.
C.,Occurattheendoftheyear.
D.,ArediscountedattheIRRrate.
E.,Arecalculatedwiththeconsiderationofthetimevalueofmoney.
93.,Theprofitabilityindexwillbe:
A.,Greaterthan1.0wheneverthenetpresentvalueisnegative. B.,Negativeanytimethenetpresentvalueisnegative.
C.,Lessthan1.0anytimethediscountrateislessthantheIRR. D.,Equalto1anytimetheIRRislessthanthediscountrate.
E.,Greaterthan1.0whentheIRRisgreaterthanthediscountrate.
94.,Randy'sManufacturingisconsideringtwomutuallyexclusiveprojects.Thecompanyhasarequiredrateofreturnof13.5%onprojectsofthisnature.ProjectAcosts
$100,000andhasanIRRof14.5%.ProjectBcosts$150,000andhasanIRRof14%.Whichprojectshouldbeacceptedandwhy?
A.,ProjectAbecauseitcostslessandhasahigherIRRthanProjectB
B.,ProjectAbecauseithasthehighestIRRofthetwoprojectsandexceedstherequiredreturn
C.,ProjectBbecauseithasthelargestnetpresentvalue
D.,ProjectBbecauseithasthelowerIRRofthetwoprojects
E.,BothprojectsbecausebothprojectIRRsaregreaterthantherequiredreturn
95.,Anindependentprojecthasconventionalcashflowsandapositivenetpresentvalue.Itcanbestatedwithcertaintythattheprojectisacceptableaccordingtothecapital
budgetingtechniqueknownas:
A.,Payback.
B.,Discountedpayback.
C.,Theaccountingrateofreturn.
D.,Thecrossovermethod.
E.,Theinternalrateofreturn.

96.,Theinternalrateofreturn(IRR)isoftenpreferredbymanagersoverthenetpresentvalue(NPV)becausetheIRR:
A.,Ismorereliablegivenunconventionalcashflows.
B.,Isthediscountratethatmaximizesnetprofits.
C.,Iscontingentuponthecurrentmarketratesofreturn.
D.,Revealsthediscountratethatmaximizesthenetpresentvalue.
E.,IsexpressedasaratewhiletheNPVisexpressedindollarterms.
97.,Whichofthefollowingareadvantagesofusingnetpresentvaluewhenevaluatingprojects?
I.NPVletsyouknowintoday'sdollarshowmuchbetterofforworseoffyouwillbeifyouacceptaproject.
II.NPVincludestimevalueofmoneyconsiderations.
III.TheNPVmethodquicklydeterminesthediscountratethatchangesanacceptdecisionintoarejectdecisionandviceversa.
IV.NPVindicatestheexpectedimpactontheownersofthefirm.
A.,IandIIonly
B.,IIandIVonly
C.,I,II,andIVonly
D.,II,III,andIVonly
E.,I,II,III,andIV
98.,Theinternalrateofreturnshould:
A.,Notbeusedforrankingmutuallyexclusiveprojects.
D.,Alwaysresultinthesamedecisionasdiscountedpayback.

B.,Onlybeappliedtosmallprojects.C.,Berelieduponmoreheavilythanthenetpresentvalue.
E.,Leadtocorrectdecisionswhencomparingmutuallyexclusiveprojects.

99.,Whichofthefollowingstatementsconcerningtheaverageaccountingreturnis(are)correct?
I.TheinformationusedintheAARcalculationiseasilyobtainable.
II.AprojectisacceptedifthetargetAARexceedstheprojectAAR.
III.TheAARignoresthetimevalueofmoney.
IV.TheAARisbasedoncashflowsandmarketvalues.
A.,Ionly
B.,IandIIIonly
C.,IandIIonly
D.,I,III,andIVonly

E.,IIIandIVonly

100.,Whichofthefollowingcapitalbudgetingtechniquesemploysomesortofarbitraryvalueagainstwhichtheprojectmeasurementmustbecomparedwhendetermining
whethertoacceptorrejectaproject?
I.Netpresentvalue
II.Averageaccountingreturn
III.Profitabilityindex
IV.Discountedpayback
A.,IIandIVonly B.,II,III,andIVonly
C.,IandIIonly
D.,I,II,andIVonly E.,I,III,andIVonly
101.,Monika'sCafwantstoexpanditsdiningareaandisconsideringtwoalternatives.Alternative1convertstheexistingdiningareaintoabuffetlineandthenbuildsanew
diningarea.Alternative2buildsanewdiningareaandremodelsthecurrentdiningareasothatoneexpansiveareaiscreated.Thisisanexampleof:
A.,Acrossoverpoint.B.,Mutuallyexclusiveprojects.C.,Negativelycorrelatedprojects.D.,Independentprojects.E.,MultipleIRRprojects.

102.,Ginnyisconsideringtwoindependentprojects.Eachprojectcosts$10,000.ProjectAproducescashinflowsof$3,000ayearforfouryears.ProjectBproducesnocash
flowsforthefirsttwoyearsand$6,000ayearforthefollowingtwoyears.Ginnywantstorecouphermoneywithin3years.ShouldGinnyaccepttheseprojects?
A.,Ginnyshouldacceptbothprojects.
B.,GinnyshouldacceptProjectAandrejectProjectB.
C.,GinnyshouldrejectProjectAandacceptProjectB.
D.,Ginnyshouldrejectbothprojects.
E.,Ginnycannotmakethatdecisionbasedontheinformationprovided.
103.,CalculatetheNPVofthefollowingprojectusingadiscountrateof12%:Yr0=$500;Yr1=$50;Yr2=$50;Yr3=$200;Yr4=$400;Yr5=$400
A.,$0.00
B.,$61.22
C.,$118.75
D.,$208.04
E.,$269.21
104.,Youareconsideringaprojectthatcosts$300andhasexpectedcashflowsof$110,$121,and$133.10overthenextthreeyears.Iftheappropriatediscountrateforthe
project'scashflowsis10%,whatisthenetpresentvalueofthisproject?
A.,TheNPVisnegative
B.,$0.00
C.,$0.71
D.,$19.79
E.,$64.10
105.,Aprojecthasaninitialinvestmentof$10,000,with$3,500annualinflowsforeachofthesubsequentfouryears.Iftherequiredreturnis15%,whatistheNPV?
A.,$435.26
B.,$32.48
C.,$7.58
D.,$4.63
E.,$5.49
106.,WhatistheNPVofthefollowingsetofcashflowsiftherequiredreturnis

14%?
A.,TheNPVisnegative

B.,$3,034

C.,$9,525

D.,$10,376

E.,$41,410

107.,Wouldyouacceptaprojectwhichisexpectedtopay$10,000ayearforsevenyearsiftheinitialinvestmentis$40,000andyourrequiredreturnis15%?
A.,Yes;theNPVis$1,604
B.,Yes;theNPVis$1,446
C.,Yes;theNPVis$4,238
D.,No;theNPVis$1,369
E.,No;theNPVis$2,783

108.,Youareconsideringaninvestmentwiththefollowingcashflows.Yourrequiredreturnis10%,yourequireapaybackofthreeyearsandadiscountedpaybackoffouryears.
Ifyourobjectiveistomaximizeyourwealth,shouldyoutakethis

investment?

A.,Yes,becausethepaybackis2.5years. B.,Yes,becausethediscountedpaybackisfouryears.
C.,Yes,becauseboththepaybackandthediscountedpaybackarelessthantwoyears. D.,No,becausetheNPVisnegative.
E.,No,becausetheprojecthasalargenegativecashflowattheendofitslife.
109.,Youaregoingtochoosebetweentwoinvestments.Bothcost$80,000,butinvestmentApays$35,000ayearforfouryearswhileinvestmentBpays$30,000ayearforfive
years.Ifyourrequiredreturnis13%,whichshouldyouchoose?
A.,Abecauseitpaysbacksooner.
B.,AbecauseitsIRRexceeds13%.
C.,AbecauseithasahigherIRR.
D.,BbecauseitsIRRexceeds13%.
E.,BbecauseithasahigherNPV.
110.,Youhaveachoicebetweentwomutuallyexclusiveinvestments.Ifyourequirea14%return,whichinvestmentshouldyouchoose?

A.,ProjectB,becauseithasasmallerinitialinvestment.
B.,ProjectA,becauseithasahigherNPV.
C.,Eitherone,becausetheyhavethesameprofitabilityindexes. D.,ProjectB,becauseithasthehigherinternalrateofreturn.
E.,ProjectB,becauseitpaysbackfaster.

111.,Foraprojectwithaninitialinvestmentof$40,000andcashinflowsof$11,000ayearforfiveyears,calculateNPVgivenarequiredreturnof11.65%.
A.,$1,205
B.,$1,103
C.,$1.23
D.,$567 E.,$1,218

112.,Whatisthepaybackperiodofa$40,000investmentwiththefollowingcashflows?

A.,1.00years
B.,1.80years
C.,2.00years
D.,2.25years
E.,3.50years
113.,Youareconsideringaninvestmentwhichhasthefollowingcashflows.Ifyourequireafouryearpaybackperiod,shouldyoutaketheinvestment?

A.,Yes,thepaybackis1.000years.
D.,No,thepaybackis4.125years.

B.,Yes,thepaybackis2.675years.
E.,No,thepaybackis5.500years.

C.,Yes,thepaybackis3.375years.

114.,Aprojectcosts$475andhascashflowsof$100forthefirstthreeyearsand$75ineachoftheproject'slastfiveyears.Whatisthepaybackperiodoftheproject?
A.,Theprojectneverpaysback B.,4.75years
C.,5.00years
D.,5.33years
E.,6.00years

115.,Whatisthepaybackperiodforthefollowinginvestment?

A.,4years

B.,3years

C.,2years

E.,Theinvestmentdoesn'tpayback

D.,1year

116.,Whatisthediscountedpaybackofthefollowingprojectiftherequiredreturnis14%?

A.,2years

B.,3years

C.,4years

E.,Itdoesn'tpaybackonadiscountedbasis

D.,5years

117.,Aprojectcosts$475andhascashflowsof$100forthefirstthreeyearsand$75ineachoftheproject'slastfiveyears.Ifthediscountrateis10%,whatisthediscounted
paybackperiod?
A.,Theprojectneverpaysbackonadiscountedbasis
B.,5years
C.,6years
D.,7years
E.,8years
118.,Iftherequiredreturnis12%,whatisthediscountedpaybackperiodofthefollowingcash

flows?
A.,2years

B.,3years

C.,4years

E.,Theprojectdoesnotpaybackonadiscountedbasis

D.,5years

119.,Supposeafirminvests$600inaproject.Theinitialcostisdepreciatedstraightlinetozeroover3years.Netincomefromtheprojectis$100,$125,and$140ineachofthe
threeyearsoftheproject'slife.Whatistheaverageaccountingreturn?
A.,18.25%
B.,20.28%
C.,35.49%
D.,40.56%
E.,60.83%

120.,Youarelookingataninvestmentwhichhasaninitialcostof$400,000andasalvagevalueofzeroafterfiveyears.Whatistheaverageaccountingreturnforthisinvestment
giventhefollowingannualnetincomes:

A.,1%

B.,36%

C.,44%

E.,55%

D.,48%

121.,Supposeaprojectcosts$300andproducescashflowsof$100overeachofthefollowingsixyears.WhatistheIRRoftheproject?
A.,Thereisnotenoughinformation;adiscountrateisrequired
B.,10.0%
C.,24.3%
D.,34.9%
E.,38.1%
122.,Yourrequiredreturnis15%.Shouldyouacceptaprojectwiththefollowingcashflows?

A.,No,becausetheIRRis13.9%.
D.,Yes,becausetheIRRis17.2%.

B.,No,becausetheIRRis14.7%.
E.,Yes,becausetheIRRis19.2%.

C.,Yes,becausetheIRRis16.2%.

123.,WhatistheIRRofaninvestmentthatcosts$77,500andpays$27,500ayearforfouryears?
A.,16% B.,18% C.,20% D.,22% E.,24%
124.,Youareevaluatingtwomutuallyexclusiveprojects,AandB.ProjectAcosts$350andhascashflowsof$250ineachofthenexttwoyears.ProjectBcosts$300and
generatescashflowsof$300and$100forthenexttwoyears,respectively.Whatisthecrossoverratefortheseprojects?
A.,26.38%
B.,27.47%
C.,30.28%
D.,61.80%
E.,83.48%
125.,Usingtheprofitabilityindex,whichofthefollowingprojectswouldyouchooseifyouhavelimited

funds?
A.,Project1

B.,Project2

C.,Project3

D.,Project4

E.,Project5

126.,Youareconsideringthefollowingprojectsbuthavelimitedfundstoinvestandcan'ttakethemall.Usingtheprofitabilityindex,ranktheprojectsintheorderinwhichyou
wouldacceptthem.Thatis,rankthemfrombesttoworst.


A.,A,B,C

B.,B,C,A

C.,C,A,B

D.,C,B,A

E.,A,C,B

127.,Whatistheprofitabilityindexofthefollowinginvestmentiftherequiredreturn=14%?
A.,0.92
B.,1.11
C.,1.13
D.,1.27 E.,1.93

128.,Basedonthepaybackrule,whichofthefollowingisfalse?
A.,Withapaybackcutoffof1.5years,bothprojectsareunacceptable.
C.,Withapaybackcutoffofoneyear,neitherprojectisacceptable.
E.,Youwouldbeindifferentbetweenthetwoprojects.
129.,Whatisthecrossoverrateforthesetwoprojects?
A.,12.2%
B.,14.0%
C.,15.4%

B.,Withapaybackcutoffofthreeyears,bothprojectsareacceptable.
D.,Sincebothprojectspayback,theNPVofbothmustbepositive.

D.,18.3%

E.,19.1%

130.,Ifthediscountrateis14%andthefirmhaslimitedfunds,whichofthefollowingistrue?
A.,ThePIofprojectAislessthan1.0.
B.,ThePIofprojectBislessthan1.0.
C.,BasedonthePIrule,projectAispreferable.
D.,BothprojectswouldberejectedbasedonthePIrule.
E.,TheprojectwiththesmallerinitialinvestmentalwayshasthehigherPI.
Usethefollowingmutuallyexclusiveinvestmentcashflowsforthequestion(s)below:

131.,Basedonthepaybackcriterion,whichofthefollowingisNOTtrue?
A.,Withapaybackcutoffof2.5years,bothprojectsareacceptable
B.,Withapaybackcutoffofthreeyears,bothprojectsareacceptable
C.,Withapaybackcutoffof1.5years,neitherprojectisacceptable
D.,Withapaybackcutoffof1.75years,onlyProjectAisacceptable
E.,Ifyouchoosetheprojectthatpaysbackthefastest,ProjectAispreferred
132.,Ifthediscountrateis14%,usingprofitabilityindexwhichofthefollowingistrue?
A.,ThePIofprojectAislessthan1.0
B.,ThePIofprojectBislessthan1.0
C.,BasedonthePI,projectAispreferable
D.,BothprojectswouldberejectedbasedonthePIcriterion
E.,BasedonthetwoPI's,itisobvioustheIRRforbothprojectsislessthan14%
133.,Computethecrossoverrateforthetwoprojects.
A.,TheNPVprofilesofthetwodonotcrossover
B.,0.0% C.,2.2% D.,3.5% E.,8.7%
,Billplanstoopenadoityourselfdogbathingcenterinastorefront.Thebathingequipmentwillcost$160,000.Billexpectstheaftertaxcashinflowstobe$40,000annuallyfor
sevenyears,afterwhichheplanstoscraptheequipmentandretiretothebeachesofJamaica.

134.,Assumetherequiredreturnis10%.Whatistheproject'sNPV?
A.,$14,111
B.,$27,322
C.,$32,556
D.,$34,737
E.,$45,001
135.,Whatistheproject'spaybackperiod?
A.,1.5years
B.,2.0years
C.,3.3years

D.,4.0years

E.,4.3years

136.,Assumetherequiredreturnis10%.Whatistheproject'sdiscountedpaybackperiod?
A.,threeyears
B.,fouryears
C.,fiveyears
D.,sixyears
E.,sevenyears
137.,Assumetherequiredreturnis17%.Whatistheproject'sIRR?Shoulditbeaccepted?
A.,12.2%;yes
B.,12.2%;no
C.,16.3%;yes
D.,16.3%;no
E.,17.0%;indifferent
138.,Assumetherequiredreturnis15%.Whatistheproject'sPI?Shoulditbeaccepted?
A.,0.88;yes
B.,0.88;no
C.,1.00;indifferent D.,1.04;yes
E.,1.04;no
,Youneedtoborrow$2,000quickly,andthelocalpawnshopwillgiveittoyouifyoupromisetorepaythem$200.92monthlyoverthenextyear.
139.,Supposethatthepawnshop'scostoffundsis12%,compoundedmonthly.Fromitsviewpoint,whatistheNPVofthisdeal?
A.,$44.11
B.,$111.01
C.,$226.17
D.,$261.37
E.,$292.01
140.,Fromthepawnshop'sviewpoint,whatistheIRRofthistransaction?
A.,1.0%permonth B.,1.7%permonth C.,2.0%permonth D.,2.5%permonth E.,3.0%permonth
141.,Fromyourviewpoint,whatisthepercentagecostofthistransaction?
A.,1.0%permonth B.,1.7%permonth C.,2.0%permonth D.,2.5%permonth E.,3.0%permonth

142.,Supposethepawnshophasmorecustomersthanfunds.Whichcapitalbudgetingtechniquewouldallowittorankpotentialcustomersinordertomaximizecurrentwealth?
A.,AAR B.,Paybackperiod C.,Profitabilityindex
D.,NPV E.,Discountedpayback
,FloydClymeristheCFOofBonavistaMustang,amanufacturerofpartsforclassicautomobiles.Floydisconsideringthepurchaseofatwotonpresswhichwillallowthefirm
tostampoutautofenders.Theequipmentcosts$250,001.Theprojectisexpectedtoproduceaftertaxcashflowsof$60,000thefirstyear,andincreaseby$10,000annually;the
aftertaxcashflowinyear5willreach$100,001.Liquidationoftheequipmentwillnetthefirm$10,000incashattheendoffiveyears,makingthetotalcashflowinyearfive
$110,000.
143.,Whatisthepaybackperiodfortheproposedinvestment?
A.,2.0years
B.,2.4years
C.,3.0years

D.,3.4years

E.,Theinvestmentdoesn'tpayback

144.,Assumethatsaleoftheequipmentattheendoffiveyearswouldnetthefirm$200,000,ratherthan$10,001.Nowwhatisthepaybackperiodfortheproposedinvestment?
A.,2.0years
B.,2.4years
C.,3.0years
D.,3.4years
E.,Theinvestmentdoesn'tpayback
145.,Assumetherequiredreturnis15%.Whatistheproject'sdiscountedpaybackperiod?
A.,twoyears
B.,threeyears
C.,fouryears
D.,fiveyears
E.,Longerthantheproject'slife.
146.,Assumetherequiredreturnis15%.Whatistheproject'snetpresentvalue?
A.,TheNPVisnegative
B.,$12,001
C.,$12,623
D.,$13,853
147.,Assumingarequiredreturnis15%,whatistheproject'sprofitabilityindex?
A.,0.98
B.,1.01
C.,1.06
D.,1.12

E.,$15,226

E.,1.28

148.,Aprojecthasaninitialcashoutlayof$16,500.Cashinflowsare$5,200inyear1,$6,800inyear2,and$8,100inyear3.Whatisthenetpresentvalueifan8.30%discount
rateisappliedtothisproject?
A.,$333.33
B.,$466.04
C.,$475.88
D.,$574.76
E.,$601.13
149.,Aprojecthasaninitialcashoutlayof$29,500.Cashinflowsareestimatedat$1,200,$6,900,$7,800,$9,500,and$4,800foryears1through5,respectively.Whatisthenet
presentvalueofthisprojectgivena7%discountrate?
A.,$5,677.15
B.,$5,314.82
C.,$2,618.03
D.,$700.00
E.,$1,806.33
150.,Aprojectisexpectedtoproducecashinflowsof$6,500forthreeyears.Whatisthemaximumamountthatcanbespentoncoststoinitiatethisprojectandstillconsiderthe
projectasacceptable,givenan11%discountrate?
A.,$15,884.15
B.,$15,897.97
C.,$15,900.00
D.,$15,967.39
E.,$19,500.00
151.,Aprojectcosts$12,500toinitiate.Cashflowsareestimatedas$2,500ayearforthefirsttwoyearsand$3,100ayearforthenextthreeyears.Thediscountrateis11.25%.
Thenetpresentvalueforthisprojectis_____andtheinternalrateofreturnis_________thediscountrate.
A.,$2,138.52;morethan
B.,$2,138.52;lessthan
C.,$1,800.00;morethan
D.,$1,800.00;lessthan
E.,$2,138.52;lessthan
152.,Matthew'sConstructionisconsideringaprojectthatwillcost$1.2milliontostart.Theprojectisexpectedtoproducecashflowsstartinginyear2of$269,000ayearforthe
followingsixyears.Whatistheinternalrateofreturnonthisproject?
A.,4.09%
B.,5.62%
C.,6.97%
D.,8.32%
E.,9.19%
153.,Salisconsideringaprojectthatcosts$15,000.Theprojectproducescashinflowsof$3,000,$5,000,$7,000,and$3,000respectivelyforthenextfouryears.Salwantsto
recouphismoneywithin3yearsafterapplyinga6%discountrate.Salshould:
A.,Accepttheprojectbecauseitproduces$15,534onadiscountedpaybackbasis.
B.,Acceptthisprojectbecausethediscountedpaybackperiodis2.78years. C.,Acceptthisprojectbecausethepaybackperiodisexactly3years.
D.,Rejectthisprojectbecausethepaybackperiodis2.78years.
E.,Rejectthisprojectbecausethediscountedpaybackperiodis3.78years.
154.,Atlantic,Inc.isconsideringaprojectthatisexpectedtoproducethefollowingcashflowsoverthenextfiveyears:$22,500,$27,900,$41,800,$33,000,and$15,000
respectively.Atlantichas$98,000available,whichistheamountneededtoinitiatetheproject.ShouldAtlanticacceptthisprojectiftherequiredrateofreturnis12%?Whyor
whynot?
A.,No;Atlanticwouldlose$2,407intoday'sdollarsiftheyaccepttheproject.
B.,No;TheIRRis13.47%,whichisgreaterthantherequiredreturn.
C.,No;ThePIis1.04,whichisconsideredarejectsignal.
D.,Yes;Atlanticwillmake$3,567intoday'sdollarsiftheyaccepttheproject.
E.,Yes;ThePIis.96,whichisconsideredanacceptancesignal.
155.,Stuartisreviewingaprojectthatcosts$13,500tostart.Theprojectisexpectedtoproducecashinflowsof$3,000,$5,000,$6,000,and$4,000overthenextfouryears,
respectively.IfStuartinvestsinthisproject,hewantstoearnatleast9%andrecouphismoneyonadiscountedbasiswithin3years.ShouldStuartinvestinthisproject?Whyor
whynot?
A.,Yes;Theprojecthasanetpresentvalueof$927.50andpaysbackwithin3years.
B.,Yes;Theprojecthasanetpresentvalueof$1,906.21andpaysbackwithin3years.
C.,No;Theprojecthasanetpresentvalueof$927.50butdoesnotpaybackwithin3years.
D.,No;Theprojectmeetsthepaybackrequirementbuthasanetpresentvalueof$1,906.21.
E.,No;Theprojectdoesnotmeeteitherrequirement.
156.,KimLeeisanalyzingtwoprojects.Thefirstrequiresa$1,200initialinvestmentandreturns$600ayearforfouryears.Thesecondprojectrequiresa$1,500initial
investmentandreturns$700ayearforfouryears.Whatisthecrossoverpointforthesetwoprojects?
A.,4.25%
B.,6.37%
C.,8.14%
D.,12.59%E.,Thecrossoverpointcannotbecomputedbasedontheinformationprovided.
157.,Sun,Inc.isanalyzingtwoprojects.ProjectArequiresaninitialinvestmentof$2,200andproducescashinflowsof$500,$550,$700,and$900respectivelyoverfouryears.
ProjectBrequiresaninitialinvestmentof$2,400andproducescashinflowsof$550,$650,$700,and$1,100respectivelyoverfouryears.Whatisthecrossoverpoint?
A.,14.14%
B.,16.88%
C.,18.32%
D.,19.76%
E.,21.65%

158.,Aprojectproducesthefollowingcashflowsoverthenextfiveyears:$600,$200,$350,$400and$500,respectively.Theinitialcostoftheprojectis$1,400.Whatisthe
internalrateofreturnonthisproject?
A.,4.56%
B.,3.67%
C.,12.87%
D.,14.39%
E.,Theratecannotbecomputedwithcertainty.
159.,TheJensenCompanyhascompiledthefollowinginformationaboutaprojectitisconsidering.

Whatistheaverageaccountingrateofreturnonthisproject?
A.,16.00%
B.,18.12%
C.,19.39%

D.,32.00%

E.,36.24%

160.,Desiree,Inc.isconsideringaddinganewproductwithastartupcostof$540,000.Thiscostwillbedepreciatedover3years,whichistheestimatedlifeoftheproduct.
Desireehasa34%marginaltaxrate.Thenetincomeforeachofthethreeyearsisestimatedat$15,000,$45,000,and$80,000.Whatistheaverageaccountingreturnforthenew
product?
A.,8.64%
B.,11.30%
C.,17.28%
D.,21.00%
E.,25.93%
161.,Aprojecthasbeenassignedarequiredannualaccountingreturnof14%andarequireddiscountrateof9%.Theinitialcostoftheprojectis$25,000.Theprojectproduces
annualcashflowsof$9,876ayearforthreeyears.Whatistheprofitabilityindexofthisproject?
A.,.92
B.,1.00 C.,1.03 D.,1.09 E.,1.19
162.,Peterisconsideringaprojectwithaninitialcostof$42,000andannualcashinflowsof$9,100ayearforsixyears.Whatdiscountrate,whenappliedtothisproject,will
produceaprofitabilityindexof1.0?
A.,7.00%
B.,7.65%
C.,7.88%
D.,8.05%
E.,8.11%
163.,TheABCCo.isconsideringthepurchaseofa$249,000pieceofequipment.Thisequipmentisexpectedtoproducecashflowsof$78,500,$149,000,and$80,000overthe
nextthreeyears.Therateofreturnonthisequipmentis:
A.,9.88%
B.,11.26%
C.,12.50%
D.,15.23%
E.,23.49%
164.,FreeleyCo.isconsideringanexpansionprojectcosting$390,000upfront.Theexpansionisexpectedtoproducecashflowsof$120,000ayearfortwoyears.InYear3,the
projectisexpectedtoproduceacashflowof$225,000.Theexpectedreturnonthisexpansionprojectis:
A.,7.12%
B.,8.16%
C.,8.33%
D.,8.51%
E.,8.47%
165.,Martha'sCupboardsjustpurchased$172,500ofnewequipment.Theequipmentisexpectedtoincreasethenetincomeofthefirmby$15,000,$35,000,$25,000,and
$10,000ayearineachofthenextfouryears.Martha'susesstraightlinedepreciationovertheprojectedlifeofeachproject.Whatistheaverageaccountingrateofreturnonthis
equipment?
A.,5.90%
B.,12.32%
C.,18.37%
D.,24.64%
E.,49.28%
166.,Jinny'sIceCreamisconsideringopeninganewoutletforaperiodofthreeyears.Theupfrontcostsare$288,000.Theoutletisexpectedtoincreasenetincomeby$31,500
ayear.Whatistheexpectedaverageaccountingrateofreturnonthisventure?
A.,14.93%
B.,21.88%
C.,31.25%
D.,38.76%
E.,43.75%
167.,TheCommodoreCo.istryingtodecidebetweenthefollowingtwomutuallyexclusiveprojects:
Theonlyrequirementthecompanyhasisthatanyprojectthatisacceptedmustproduceaminimumrateofreturnof11%.Whatshouldthecompanydoandwhy?

A.,Bothprojectsshouldbeacceptedbecausetheirpaybackperiodsareonlyabout2years.
B.,BothprojectsshouldbeacceptedbecausetheyhaveIRRsof22.87%and28.45%,whichexceedthe11%requirement.
C.,BothprojectsshouldbeacceptedbecausetheybothhavepositiveNPVs.
D.,ProjectIshouldbeacceptedbecauseithasanNPVof$3,908.58.ProjectIIcannotalsobeaccepted.
E.,ProjectIIshouldbeacceptedbecauseithasanIRRof28.45%,whichisgreaterthanProjectI'sIRR.
168.,Thedifferencebetweenthepresentvalueofaninvestmentanditscostisthe:
A.,netpresentvalue.
B.,internalrateofreturn.
C.,paybackperiod. D.,profitabilityindex.

E.,discountedpaybackperiod.

169.,Theprocessofvaluinganinvestmentbydeterminingthepresentvalueofitsfuturecashflowsiscalled(the):
A.,constantdividendgrowthmodel.
B.,discountedcashflowvaluation.
C.,averageaccountingvaluation.
D.,expectedearningsmodel.
E.,CapitalAssetPricingModel.
170.,Whichoneofthefollowingstatementsconcerningnetpresentvalue(NPV)iscorrect?
A.,Aninvestmentshouldbeacceptedif,andonlyif,theNPVisexactlyequaltozero.
B.,AninvestmentshouldbeacceptedonlyiftheNPVisequaltotheinitialcashflow.
C.,AninvestmentshouldbeacceptediftheNPVispositiveandrejectedifitisnegative.
D.,Aninvestmentwithgreatercashinflowsthancashoutflows,regardlessofwhenthecashflowsoccur,willalwayshaveapositiveNPVandthereforeshouldalwaysbe
accepted.
E.,Anyprojectthathaspositivecashflowsforeverytimeperiodaftertheinitialinvestmentshouldbeaccepted.
171.,Thelengthoftimerequiredforaninvestmenttogeneratecashflowssufficienttorecovertheinitialcostoftheinvestmentiscalledthe:
A.,netpresentvalue. B.,internalrateofreturn.
C.,paybackperiod.
D.,profitabilityindex.
E.,discountedcashperiod.

172.,Whichoneofthefollowingstatementsiscorrectconcerningthepaybackperiod?
A.,Aninvestmentisacceptableifitscalculatedpaybackperiodislessthansomeprespecifiedperiodoftime.
B.,Aninvestmentshouldbeacceptedifthepaybackispositiveandrejectedifitisnegative.
C.,Aninvestmentshouldberejectedifthepaybackispositiveandacceptedifitisnegative.
173.,Thediscountedpaybackrulestatesthatyoushouldacceptprojects:
A.,whichhasadiscountedpaybackperiodthatisgreaterthansomeprespecifiedperiodoftime.
B.,ifthediscountedpaybackispositiveandrejectedifitisnegative.
C.,onlyifthediscountedpaybackperiodequalssomeprespecifiedperiodoftime.
D.,ifthediscountedpaybackperiodislessthansomeprespecifiedperiodoftime. E.,onlyifthediscountedpaybackperiodisequaltozero.
174.,Aninvestment'saveragenetincomedividedbyitsaveragebookvaluedefinestheaverage:
A.,netpresentvalue.
B.,internalrateofreturn.
C.,accountingreturn.

D.,profitabilityindex.

E.,paybackperiod.

175.,Aninvestmentisacceptableifitsaverageaccountingreturn(AAR):
A.,islessthanatargetAAR.
B.,exceedsatargetAAR.
C.,exceedsthefirm'sreturnonequity(ROE).
D.,islessthanthefirm'sreturnonassets(ROA).
E.,isequaltozeroandonlywhenitisequaltozero.
176.,Thediscountratethatmakesthenetpresentvalueofaninvestmentexactlyequaltozeroiscalledthe:
A.,externalrateofreturn.
B.,internalrateofreturn.
C.,averageaccountingreturn. D.,profitabilityindex.
177.,Aninvestmentisacceptableifit'sIRR:
A.,isexactlyequaltoitsnetpresentvalue(NPV).
B.,isexactlyequaltozero.
D.,exceedstherequiredreturn.
E.,isexactlyequalto100percent.

E.,equalizer.

C.,islessthantherequiredreturn.

178.,Aninvestmentisacceptableiftheprofitabilityindex(PI)oftheinvestmentis:
A.,greaterthanone.
B.,lessthanone.
C.,greaterthantheinternalrateofreturn(IRR).
D.,lessthanthenetpresentvalue(NPV). E.,greaterthanaprespecifiedrateofreturn.
179.,Capitalbudgetingdecisionsgenerally:
A.,havelongtermeffectsonafirm.
B.,areofshortduration.
D.,focussolelyonwhetherornotaparticularassetshouldbepurchased.

C.,areeasytoreviseonceimplemented.
E.,haveminimaleffectsonafirm'soperations.

180.,Whichofthefollowingarecapitalbudgetingdecisions?
I.determiningwhethertosellbondsorissuestock
II.decidingwhichproductmarketstoenter
III.decidingwhetherornottopurchaseanewpieceofequipment
IV.determiningwhich,ifany,newproductsshouldbeproduced
A.,Ionly
B.,IIIonly
C.,IIandIVonly
D.,I,III,andIVonly

E.,II,III,andIVonly

181.,Allelseconstant,thenetpresentvalueofaprojectincreaseswhen:
A.,thediscountrateincreases. B.,eachcashinflowisdelayedbyoneyear. C.,theinitialcostofaprojectincreases.
D.,therateofreturndecreases.
E.,allcashinflowsoccurduringthelastyearofaproject'slifeinsteadofperiodicallythroughoutthelifeoftheproject.
182.,Theprimaryreasonthatcompanyprojectswithpositivenetpresentvaluesareconsideredacceptableisthat:
A.,theycreatevaluefortheownersofthefirm.
B.,theproject'srateofreturnexceedstherateofinflation.
C.,theyreturntheinitialcashoutlaywithinthreeyearsorless.
D.,therequiredcashinflowsexceedtheactualcashinflows.
E.,theinvestment'scostexceedsthepresentvalueofthecashinflows.
183.,Ifaprojecthasanetpresentvalueequaltozero,then:
I.thepresentvalueofthecashinflowsexceedstheinitialcostoftheproject.
II.theprojectproducesarateofreturnthatjustequalstheraterequiredtoaccepttheproject.
III.theprojectisexpectedtoproduceonlytheminimallyrequiredcashinflows.
IV.anydelayinreceivingtheprojectedcashinflowswillcausetheprojecttohaveanegativenetpresentvalue.
A.,IIandIIIonly
B.,IIandIVonly
C.,I,II,andIVonly
D.,II,III,andIVonly
E.,I,II,andIIIonly
184.,Whencomputingthenetpresentvalueofaproject,thenetamountreceivedfromsalvagingthefixedassetsusedintheprojectis:
A.,subtractedfromtheinitialcashoutlay.
B.,includedinthefinalcashflowoftheproject.
C.,excludedfromtheanalysissinceitoccursonlywhentheprojectends.
D.,subtractedfromtheoriginalcostoftheassets.
E.,addedtothenetpresentvalueoftheprojecttodetermineiftheprojectisacceptable.
185.,Netpresentvalue:
I.whenappliedproperly,canaccuratelypredictthecashflowsthatwilloccurifaprojectisimplemented.
II.ishighlyindependentoftherateofreturnassignedtoaparticularproject.
III.isthepreferredmethodofanalyzingaprojecteventhoughthecashflowsareonlyestimates.
IV.isaffectedbythetimingofeachandeverycashflowrelatedtoaproject.
A.,Ionly
B.,IIIonly
C.,IIandIVonly
D.,IIIandIVonly E.,I,III,andIVonly
186.,Netpresentvalue:
A.,cannotbeusedwhendecidingbetweentwomutuallyexclusiveprojects.

B.,ismoreusefultodecisionmakersthantheinternalrateofreturnwhencomparingdifferentsizedprojects.
C.,iseasytoexplaintononfinancialmanagersandthusistheprimarymethodofanalysisusedbythelowestlevelsofmanagement.
D.,iscomputedthesameaspresentvaluewhenusingexcelspreadsheetstoanalyzeaproject.
E.,isverysimilarinitsmethodologytotheaverageaccountingreturn.
187.,Paybackisfrequentlyusedtoanalyzeindependentprojectsbecause:
A.,itconsidersthetimevalueofmoney. B.,allrelevantcashflowsareincludedintheanalysis.
C.,thecostoftheanalysisislessthanthepotentiallossfromafaultydecision.
D.,itisthemostdesirableofalltheavailableanalyticalmethodsfromafinancialperspective.
E.,itproducesbetterdecisionsthanthosemadeusingeitherNPVorIRR.
188.,Theadvantagesofthepaybackmethodofprojectanalysisincludethe:
I.applicationofadiscountratetoeachseparatecashflow.
II.biastowardsliquidity.
III.easeofuse.
IV.arbitrarycutoffpoint.
A.,IandIIonly
B.,IandIIIonly
C.,IIandIIIonly D.,IIandIVonly

E.,II,III,andIVonly

189.,Underthepaybackmethodofanalysis:
A.,theinitialcashoutlayisignored.
B.,thecashflowinyear3isignorediftherequiredpaybackperiodis4years.
C.,aproject'sinitialcostisdiscounted.
D.,thecashflowinyear2isvaluedjustashighlyasthecashflowinyear1aslongastherequiredpaybackperiodis3yearsormore.
E.,aprojectwillbeacceptablewheneverthepaybackperiodexceedstheprespecifiednumberofyears.
190.,Allelseequal,thepaybackperiodforaprojectwilldecreasewheneverthe:
A.,initialcostincreases.
B.,requiredreturnforaprojectincreases. C.,assigneddiscountratedecreases.
D.,cashinflowsaremovedforwardintime.
E.,durationofaprojectislengthened.

191.,Thediscountedpaybackperiodofaprojectwilldecreasewheneverthe:
A.,discountrateappliedtotheprojectisincreased.
B.,initialcashoutlayoftheprojectisincreased.
C.,timeperiodoftheprojectisincreased.
D.,amountofeachprojectcashflowisincreased. E.,costsofthefixedassetsutilizedintheprojectincrease.
192.,Thediscountedpaybackrulemaycause:
A.,somepositivenetpresentvalueprojectstoberejected.
B.,themostliquidprojectstoberejectedinfavoroflessliquidprojects.
C.,projectstobeincorrectlyacceptedduetoignoringthetimevalueofmoney.
D.,projectswithnegativenetpresentvaluestobeaccepted.
E.,someprojectstobeacceptedwhichwouldotherwiseberejectedunderthepaybackrule.
193.,Theaverageaccountingrateofreturn:
A.,isactuallybasedmoreonfinancialvaluesthanonaccountingvalues.
B.,measuresnetincomeagainstthemarketvalueofafirm.
C.,ishighlyrecommendedbyfinancialprofessionalsasoneofthetwobestmethodologiesusedintheanalysisofindependentprojects.
D.,istheprimarymethodologyusedinanalyzingindependentprojects.
E.,issimilartothereturnonassetsratio.
194.,Assumingthatstraightlinedepreciationisused,theaverageaccountingreturnforaprojectiscomputedastheaverage:
A.,netincomeofaprojectdividedbytheaveragetotalassetsofafirm.
B.,bookvalueofaprojectmultipliedbytheaverageprofitmarginoftheproject.
C.,bookvalueofaprojectdividedbytheaveragenetincomeoftheproject. D.,netincomeofaprojectdividedbytheaverageinvestmentintheproject.
E.,netincomeofthefirmdividedbytheaverageinvestmentinaproject.
195.,Whichofthefollowingaredisadvantagesassociatedwiththeaverageaccountingreturn?
I.difficultyinobtainingnecessaryinformationtodocomputation
II.exclusionoftimevalueofmoneyconsiderations
III.theuseofacutoffrateasabenchmark
IV.theaccountingbasisofthevaluesusedinthecomputation
A.,IandIVonly
B.,IIandIIIonly
C.,I,II,andIIIonly
D.,II,III,andIVonly

E.,I,II,andIVonly

196.,Theaverageaccountingreturn:
A.,reflectstheprojectedneteffectofthecashflowsfromaprojectontheoverallfirm.
B.,iscomparabletothereturnonassetsandthusprovidesasimilarmeasureofperformance.
C.,reflectstheanticipatednetimpactofaprojectontheshareholdersofthefirm.
D.,rule,whenapplied,guaranteesthatonlyprojectsthatincreaseshareholderwealthwillbeaccepted.
E.,ignoresallincomeproducedbyaprojectafteranarbitrarilyassignedcutoffpoint.
197.,Theinternalrateofreturn(IRR):
I.rulestatesthataprojectwithanIRRthatislessthantherequiredrateshouldbeaccepted.
II.istherategeneratedsolelybythecashflowsofaninvestment.
III.istheratethatcausesthenetpresentvalueofaprojecttoexactlyequalzero.
IV.caneffectivelybeusedtoanalyzeallinvestmentscenarios.
A.,IandIVonly
B.,IIandIIIonly C.,I,II,andIIIonly D.,II,III,andIVonly

E.,I,II,III,andIV

198.,Theinternalrateofreturnmethodofanalysis:
I.mayproducemultipleratesofreturnforasingleproject.
II.mayleadtoincorrectdecisionswhencomparingmutuallyexclusiveprojects.
III.isgenerallymorepopularinpracticethanNPV.
IV.worksbestforindependentprojectswithconventionalcashflows.
A.,IandIIonly
B.,IIIandIVonly C.,I,III,andIVonly
D.,I,II,andIVonly E.,I,II,III,andIV

199.,Theinternalrateofreturnforaprojectwillincreaseif:
A.,theinitialcostoftheprojectcanbereduced.
B.,thetotalamountofthecashinflowsisreduced.
C.,eachcashinflowismovedsuchthatitoccursoneyearlaterthanoriginallyprojected.
D.,therequiredrateofreturnisreduced.
E.,thesalvagevalueoftheprojectisomittedfromtheanalysis.
200.,Theinternalrateofreturnis:
A.,morereliableasadecisionmakingtoolthannetpresentvaluewheneveryouareconsideringmutuallyexclusiveprojects.
B.,equivalenttothediscountratethatmakesthenetpresentvalueequaltoone.
C.,difficulttocomputewithouttheuseofeitherafinancialcalculatororacomputer.
D.,dependentupontheinterestratesofferedinthemarketplace.
E.,abettermethodologythannetpresentvaluewhendealingwithunconventionalcashflows.
201.,Whichofthefollowingareelementsoftheinternalrateofreturnmethodofanalysis?
I.thetimingofthecashflows
II.thecutoffpointafterwhichanyfuturecashflowsareignored
III.theratedesignatedastheminimumacceptablerateforaprojecttobeaccepted
IV.theinitialcostofaninvestment
A.,IandIIonly
B.,IIIandIVonly C.,I,II,andIIIonly D.,I,III,andIVonly

E.,II,III,andIVonly

202.,Theinternalrateofreturntendstobe:
A.,easierformanagerstocomprehendthanthenetpresentvalue.
B.,extremelyaccurateevenwhencashflowestimatesarefaulty.
C.,ignoredbymostfinancialanalysts.
D.,usedprimarilytodifferentiatebetweenmutuallyexclusiveprojects.
E.,utilizedinprojectanalysisonlywhenmultiplenetpresentvaluesapply.
203.,YouaretryingtodeterminewhethertoacceptprojectAorprojectB.Theseprojectsaremutuallyexclusive.Aspartofyouranalysis,youshouldcomputethecrossover
pointbydetermining:
A.,theinternalrateofreturnforthecashflowsofeachproject.
B.,thenetpresentvalueofeachprojectusingtheinternalrateofreturnasthediscountrate.
C.,thediscountratethatequatesthediscountedpaybackperiodsforeachproject.
D.,thediscountratethatmakesthenetpresentvalueofeachprojectequalto1.
E.,theinternalrateofreturnforthedifferencesinthecashflowsofthetwoprojects.
204.,Youarecomparingtwomutuallyexclusiveprojects.Thecrossoverpointis9percent.YoudeterminethatyoushouldacceptprojectAiftherequiredreturnis6percent.
Thisimpliesthatyoushould:
I.rejectprojectBiftherequiredreturnis6percent.
II.alwaysacceptprojectAandalwaysrejectprojectB.
III.alwaysrejectprojectAanytimethediscountrateisgreaterthan9percent.
IV.acceptprojectAanytimethediscountrateislessthan9percent.
A.,IandIIonly
B.,IIIandIVonly
C.,I,III,andIVonly
D.,I,II,andIVonly
E.,I,II,III,andIV
205.,Graphingthecrossoverpointhelpsexplain:
A.,whyoneprojectisalwayssuperiortoanotherproject.
B.,howdecisionsconcerningmutuallyexclusiveprojectsarederived.
C.,howthedurationofaprojectaffectsthedecisionastowhichprojecttoaccept.
D.,howthenetpresentvalueandtheinitialcashoutflowofaprojectarerelated.
E.,howtheprofitabilityindexandthenetpresentvaluearerelated.
206.,Theprofitabilityindexiscloselyrelatedto:
A.,payback.
B.,discountedpayback.

C.,theaverageaccountingreturn.

D.,netpresentvalue.

E.,mutuallyexclusiveprojects.

207.,Analysisusingtheprofitabilityindex:
A.,frequentlyconflictswiththeacceptandrejectdecisionsgeneratedbytheapplicationofthenetpresentvaluerule.
B.,isusefulasadecisiontoolwheninvestmentfundsarelimited.
C.,isusefulwhentryingtodeterminewhichoneoftwomutuallyexclusiveprojectsshouldbeaccepted.
D.,utilizesthesamebasicvariablesasthoseusedintheaverageaccountingreturn.
E.,producesresultswhichtypicallyaredifficulttocomprehendorapply.
208.,Ifyouwanttoreviewaprojectfromabenefitcostperspective,youshouldusethe_____methodofanalysis.
A.,netpresentvalue
B.,payback
C.,internalrateofreturn
D.,averageaccountingreturn

E.,profitabilityindex

209.,Whenthepresentvalueofthecashinflowsexceedstheinitialcostofaproject,thentheprojectshouldbe:
A.,acceptedbecausetheinternalrateofreturnispositive.
B.,acceptedbecausetheprofitabilityindexisgreaterthan1.
C.,acceptedbecausetheprofitabilityindexisnegative.
D.,rejectedbecausetheinternalrateofreturnisnegative.
E.,rejectedbecausethenetpresentvalueisnegative.
210.,Whichoneofthefollowingisthebestexampleoftwomutuallyexclusiveprojects?
A.,planningtobuildawarehouseandaretailoutletsidebyside
B.,buyingsufficientequipmenttomanufacturebothdesksandchairssimultaneously
C.,usinganemptywarehouseforstorageorrentingitentirelyouttoanotherfirm
D.,usingthecompanysalesforcetopromotesalesofbothshoesandsocks E.,buyingbothinventoryandfixedassetsusingfundsfromthesamebondissue
211.,TheNewBluesCo.isconsideringtwoprojects.ProjectAconsistsofbuildingawholesalebookoutletonlot#169oftheMinglewoodRetailCenter.ProjectBconsistsof
buildingasitdownrestaurantonlot#169oftheMinglewoodRetailCenter.Whentryingtodecidewhetherorbuildthebookoutletortherestaurant,managementshouldrely

mostheavilyontheanalysisresultsfromthe_____methodofanalysis.
A.,profitabilityindex
B.,internalrateofreturn
C.,payback

D.,netpresentvalue

E.,accountingrateofreturn

212.,Whentwoprojectsbothrequirethetotaluseofthesamelimitedeconomicresource,theprojectsaregenerallyconsideredtobe:
A.,independent.
B.,marginallyprofitable.
C.,mutuallyexclusive.
D.,acceptable.
E.,internallyprofitable.
213.,Thefinaldecisiononwhichoneoftwomutuallyexclusiveprojectstoacceptultimatelydependsuponthe:
A.,initialcostofeachproject. B.,requireddiscountrate.
C.,totalcashinflowsofeachproject.
D.,assignedpaybackperiodofeachproject.E.,lengthofeachproject'slife.
214.,Mattisanalyzingtwomutuallyexclusiveprojectsofsimilarsizeandhaspreparedthefollowingdata.Bothprojectshave5yearlives.

Matthasbeenaskedforhisbestrecommendationgiventhisinformation.Hisrecommendationshouldbetoaccept:
A.,projectBbecauseithastheshortestpaybackperiod.
B.,bothprojectsastheybothhavepositivenetpresentvalues.
C.,projectAandrejectprojectBbasedontheirnetpresentvalues.
D.,projectBandrejectprojectAbasedontheiraverageaccountingreturns.
E.,projectBandrejectprojectAbasedonboththepaybackperiodandtheaverageaccountingreturn.
215.,Giventhatthenetpresentvalue(NPV)isgenerallyconsideredtobethebestmethodofanalysis,whyshouldyoustillusetheothermethods?
A.,Theothermethodshelpvalidatewhetherornottheresultsfromthenetpresentvalueanalysisarereliable.
B.,Youneedtousetheothermethodssinceconventionalpracticedictatesthatyouonlyacceptprojectsafteryouhavegeneratedthreeacceptindicators.
C.,Youneedtouseothermethodsbecausethenetpresentvaluemethodisunreliablewhenaprojecthasunconventionalcashflows.
D.,Theaverageaccountingreturnmustalwaysindicateacceptancesincethisisthebestmethodfromafinancialperspective.
E.,ThediscountedpaybackmethodmustalwaysbecomputedtodetermineifaprojectreturnsapositivecashflowsinceNPVdoesnotmeasurethisaspectofaproject.
216.,Inactualpractice,managersfrequentlyusethe:
I.AARbecausetheinformationissoreadilyavailable.
II.IRRbecausetheresultsareeasytocommunicateandunderstand.
III.paybackbecauseofitssimplicity.
IV.netpresentvaluebecauseitisconsideredbymanytobethebestmethodofanalysis.
A.,IandIIIonly
B.,IIandIIIonly
C.,I,III,andIVonly
D.,II,III,andIVonly

E.,I,II,III,andIV

217.,Nomatterhowmanyformsofinvestmentanalysisyoudo:
A.,theactualresultsfromaprojectmayvarysignificantlyfromtheexpectedresults.
B.,theinternalrateofreturnwillalwaysproducethemostreliableresults.
C.,aprojectwillneverbeacceptedunlessthepaybackperiodismet.
D.,theinitialcostswillgenerallyvaryconsiderablyfromtheestimatedcosts.
E.,onlythefirstthreeyearsofaprojecteveraffectitsfinaloutcome.
218.,Whichofthefollowingmayhavecontributedtothechangeintheprimarymethodsusedbychieffinancialofficerstoevaluateprojectsoverthepastfortyyears?
I.anincreasedemphasisoneaseofuseandsimplicityofmethod
II.anincreasedavailabilityofcomputersandfinancialcalculatorstohandlethemorecomplexcomputations
III.anincreasedleveloffinancialknowledgebyincreasingsophisticatedbusinessexecutives
IV.anincreasingemphasisbyfinancialexecutivesonaccountingvaluesratherthanfinancialvalues
A.,IandIIonly
B.,IIandIIIonly C.,IIIandIVonly D.,I,II,andIVonly E.,II,III,andIVonly
219.,Whichofthefollowingmethodsofprojectanalysisarebiasedtowardsshorttermprojects?
I.Internalrateofreturn
II.Accountingrateofreturn
III.Payback
IV.Discountedpayback
A.,IandIIonly
B.,IIIandIVonly C.,IIandIIIonly
D.,IandIVonly
E.,IIandIVonly

220.,Ifaprojectisassignedarequiredrateofreturnequaltozero,then:
A.,thetimingoftheproject'scashflowshasnobearingonthevalueoftheproject.
B.,theprojectwillalwaysbeaccepted.
C.,theprojectwillalwaysberejected.
D.,whethertheprojectisacceptedorrejectedwilldependonthetimingofthecashflows.
221.,Youareconsideringaprojectwiththefollowingdata:

Whichoneofthefollowingiscorrectgiventhisinformation?
A.,Thediscountrateusedincomputingthenetpresentvaluemusthavebeenlessthan8.7percent.
B.,Thediscountedpaybackperiodwillhavetobelessthan2.44years.
C.,Thediscountrateusedtocomputetheprofitabilityratiowasequaltotheinternalrateofreturn.
D.,Thisprojectshouldbeacceptedbasedontheprofitabilityratio.
E.,Thisprojectshouldberejectedbasedontheinternalrateofreturn.

222.,Whichofthefollowingstatementsarecorrect?
I.Apositivenetpresentvaluesignalsanacceptdecision.
II.Projectsshouldbeacceptedwhentheprofitabilityindexislessthan1.
III.Apaybackperiodthatislessthantherequiredperiodsignalsanacceptdecision.
IV.Whentheinternalrateofreturnexceedstherequiredreturn,aprojectshouldbeaccepted.
A.,IandIIIonly
B.,II,III,andIVonly
C.,I,III,andIVonly
D.,I,II,andIIIonly E.,I,II,III,andIV
223.,Whatisthenetpresentvalueofaprojectthathasaninitialcashoutflowof$12,670andthefollowingcashinflows?Therequiredreturnis11.5percent.

A.,$218.68

B.,$370.16

C.,$768.20

D.,$1,249.65

E.,$1,371.02

224.,Aprojectwillproducecashinflowsof$1,750ayearforfouryears.Theprojectinitiallycosts$10,600togetstarted.Inyearfive,theprojectwillbeclosedandasaresult
shouldproduceacashinflowof$8,500.Whatisthenetpresentvalueofthisprojectiftherequiredrateofreturnis13.75percent?
A.,$5,474.76
B.,$1,011.40
C.,$935.56
D.,$1,011.40
E.,$5,474.76
225.,Youareconsideringthefollowingtwomutuallyexclusiveprojects.Therequiredrateofreturnis11.25percentforprojectAand10.75percentforprojectB.Whichproject
shouldyouacceptandwhy?

A.,projectA;becauseitsNPVisabout$335morethantheNPVofprojectB
B.,projectA;becauseithasthehigherrequiredrateofreturn
C.,projectB;becauseithasthelargesttotalcashinflow
D.,projectB;becauseitreturnsallitscashflowswithintwoyears
E.,projectB;becauseitisthelargestsizedproject
226.,Youareconsideringtwomutuallyexclusiveprojectswiththefollowingcashflows.Willyourchoicebetweenthetwoprojectsdifferiftherequiredrateofreturnis8
percentratherthan11percent?Ifso,whatshouldyoudo?

A.,yes;SelectAat8percentandBat11percent.
B.,yes;SelectBat8percentandAat11percent.
C.,yes;SelectAat8percentandselectneitherat11percent.
D.,no;Regardlessoftherequiredrate,projectAalwayshasthehigherNPV.
E.,no;Regardlessoftherequiredrate,projectBalwayshasthehigherNPV.
227.,Aninvestmenthasthefollowingcashflows.Shouldtheprojectbeacceptedifithasbeenassignedarequiredreturnof9.5percent?Whyorwhynot?

A.,yes;becausetheIRRexceedstherequiredreturnbyabout0.39percent
B.,yes;becausetheIRRislessthantherequiredreturnbyabout3.9percent
C.,yes;becausetheIRRispositive
D.,no;becausetheIRRexceedstherequiredreturnbyabout3.9percent
E.,no;becausetheIRRis9.89percent

228.,Youareconsideringtwoindependentprojectswiththefollowingcashflows.Therequiredreturnforbothprojectsis10percent.Giventhisinformation,whichoneofthe
followingstatementsiscorrect?

A.,YoushouldacceptprojectBsinceithasthehigherIRRandrejectprojectAbecauseyoucannotacceptbothprojects.
B.,YoushouldacceptprojectAbecauseithasthelowerNPVandrejectprojectB.
C.,YoushouldacceptprojectAbecauseithasthehigherNPVandyoucannotacceptbothprojects.
D.,YoushouldacceptprojectBbecauseithasthehigherIRRandrejectprojectA.
E.,Youshouldacceptbothprojectsifthefundsareavailabletodoso.