# 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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