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Finance Flashcards

Finance: NPV and IRR

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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