The difference between the present value of an investment and its cost is the: | net present value. |

Which one of the following statements concerning net present value (NPV) is correct? | An investment should be accepted if the NPV is positive and rejected if it is negative. |

The length of time required for an investment to generate cash flows sufficient to recover the initial cost of the investment is called the: | payback period. |

The length of time required for a project’s discounted cash flows to equal the initial cost of the project is called the: | discounted payback period. |

The discount rate that makes the net present value of an investment exactly equal to zero is called the: | internal rate of return. |

An investment is acceptable if its IRR: | exceeds the required return. |

A situation in which accepting one investment prevents the acceptance of another investment is called the: | mutually exclusive investment decision. |

The present value of an investment’s future cash flows divided by the initial cost of the investment is called the: | profitability index. |

An investment is acceptable if the profitability index (PI) of the investment is: | greater than one. |

All else constant, the net present value of a typical investment project increases when: | the rate of return decreases. |

Net present value: | is more useful to decision makers than the internal rate of return when comparing different sized projects. |

The internal rate of return is: | difficult to compute without the use of either a financial calculator or a computer. |

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