ID:__________________ Name:__________________
c 1. 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.
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.
2.
Which one of the following statements is correct concerning the payback period?
a.
b.
c.
d.
An investment is acceptable if its calculated payback period is less than some prespecified period of time.
3.
The length of time required for a projects discounted cash flows to equal the initial
cost of the project is called the:
a.
payback period.
c.
e.
4.
The discount rate that makes the net present value of an investment exactly equal to
b.
d.
a.
b.
c.
e.
equalizer.
5.
The possibility that more than one discount rate will make the NPV of an
investment equal to zero is called the _____ problem.
d.
a.
c.
e.
d. 6.
I.
b.
scale
d.
operational ambiguity
II. the project produces a rate of return that just equals the rate required to accept the
project.
III. the project is expected to produce only the minimally required cash inflows.
IV. any delay in receiving the projected cash inflows will cause the project to have a
negative net present value.
a.
b. II and IV only
d.
7.
I.
rule states that a typical investment project with an IRR that is less than the required
rate should be accepted.
e.
a.
I and IV only
d.
8.
If you want to compare the present value of the future cash inflows of a project with
its initial cost, you should use the _______ method of analysis.
a.
payback
c.
profitability index
e.
9.
I.
II.
e.
b.
incremental IRR
d.
a.
I and II only
c.
d. II and IV only
e.
10. The possibility that more than one discount rate will make the NPV of an
investment equal to zero is called the _____ problem.
a.
b.
c.
e.
scale
d.
operational ambiguity