Finance Chapter 8

Discounted cash flow valuation is the process of discounting an investment’s: future cash flows
The payback period is the length of time it takes an investment to generate sufficient cash flows to enable the project to: recoup its initial cost.
Which one of the following defines the internal rate of return for a project? Discount rate that results in a zero net present value for the project
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? Mutually exclusive
Which one of the following can be defined as a benefit-cost ratio? Profitability index
Which one of the following indicates that a project is expected to create value for its owners? Positive net present value
Which one of the following is generally considered to be the best form of analysis if you have to select a single method to analyze a variety of investment opportunities? Net present value
Which one of the following statements is correct?A longer payback period is preferred over a shorter payback period.The payback rule states that you should accept a project if the payback period is less than one year.The payback period ignores the time value of money.The payback rule is biased in favor of long-term projects.The payback period considers the timing and amount of all of a project’s cash flows. The payback period ignores the time value of money.
Payback is best used to evaluate which type of projects? Low-cost, short-term
Which one of the following is an indicator that an investment is acceptable? Internal rate of return that exceeds the required return

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