Finance 300 Exam 2

A project’s opportunity cost of capital is: the forgone return from investing in the project.
Which of the following statements is correct for a project with a positive NPV? IRR exceeds the cost of capital.
If the net present value of a project which costs $20,000 is $5,000 when the discount rate project’s rate of return is greater than 10%.
What is the NPV of a project that costs $100,000 and returns $50,000 annually for three years if the opportunity cost of capital is 14%? $16,085.00
The decision rule for net present value is to: accept all projects with positive net present values.
What should occur when a project’s net present value is determined to be negative? The project should be rejected.
Which of the following changes will increase the NPV of a project? A decrease in the discount rate
What is the maximum that should be invested in a project at time zero if the inflows are estimated at $50,000 annually for three years, and the cost of capital is 9%? . $126,565.00
When a manager does not accept a positive-NPV project, shareholders face an opportunity cost in the amount of the: project’s NPV.
What is the approximate maximum amount that a firm should consider paying for a project that will return $15,000 annually for 5 years if the opportunity cost is 10%? $56,860
Which of the following projects would you feel safest in accepting? Assume the opportunity cost of capital to be 12% for each project. “D” has a zero NPV when discounted at 14%.
As the discount rate is increased, the NPV of a specific project will: decrease
. If the opportunity cost of capital for a project exceeds the project’s IRR, then the project has a(n): negative NPV.
When the NPV of an investment is positive, then the IRR will be: greater than the opportunity cost of capital.
Which of the following can be deduced about a three- year investment project that has a two-year payback period? Neither ‘a’ nor ‘b’ can be deduced.
When a project’s internal rate of return equals its opportunity cost of capital, then: . the net present value will be zero.
Firms that make investment decisions based upon the payback rule may be biased toward rejecting projects: with long lives
One method that can be used to increase the NPV of a project is to decrease the: time until receipt of cash inflows.
What is the minimum number of years that an investment costing $500,000 must return $65,000 per year at a discount rate of 13% in order to be an acceptable investment? An infinite number of years
Which of the following statements is most likely correct for a project costing $50,000 and returning $14,000 per year for five years? IRR is greater than 10%.
If the IRR for a project is 15%, then the project’s NPV would be: negative at a discount rate of 20%.
As long as the NPV of a project declines smoothly with increases in the discount rate, the project is acceptable if its: rate of return exceeds the cost of capital.

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