Finance chapter 8 and 9

The net present value of an investment represents the difference between the investment’s: Cost and its Market Value
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.
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
The net present value: Decreases as the required rate of return increases.
Which one of the following statements is correct?A.) The net present value is a measure of profits expressed in today’s dollars.B.)The net present value is positive when the required return exceeds the internal rate of return.C.) If the initial cost of a project is increased, the net present value of that project will also increase.D.) If the internal rate of return equals the required return, the net present value will equal zero.E.) Net present value is equal to an investment’s cash inflows discounted to today’s dollars. If the internal rate of return equals the required return, the net present value will equal zero.
Which one of the following statements is correct?A.) A longer payback period is preferred over a shorter payback period.B.) The payback rule states that you should accept a project if the payback period is less than one year.C.) The payback period ignores the time value of money.D.) The payback rule is biased in favor of long-term projects.E.) 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.
Generally speaking, payback is best used to evaluate which type of projects? Low-cost, short-term
Which one of the following statements is correct? Assume cash flows are conventional.A.) If the IRR exceeds the required return, the profitability index will be less than 1.0.B.) The profitability index will be greater than 1.0 when the net present value is negative.C.) When the internal rate of return is greater than the required return, the net present value is positive.D.) Projects with conventional cash flows have multiple internal rates of return.C.) If two projects are mutually exclusive, you should select the project with the shortest payback period. When the internal rate of return is greater than the required return, the net present value is positive.
Which one of the following is an indicator that an investment is acceptable? Assume cash flows are conventional. Internal rate of return that exceeds the required return
Which one of the following will occur when the internal rate of return equals the required return? The profitability index will equal 1.0.
Any changes to a firm’s projected future cash flows that are caused by adding a new project are referred to as: Incremental cash flows.
Which one of the following terms refers to the best option that was foregone when a particular investment is selected? Opportunity cost
The amount by which a firm’s tax bill is reduced as a result of the depreciation expense is referred to as the depreciation: Tax Shield
Kyle Electric has three positive net present value opportunities. Unfortunately, the firm has not been able to find financing for any of these projects. Which one of the following terms best fits the situation facing the firm? Capital Rationing
The analysis of a new project should exclude: Sunk Costs
The net working capital invested in a project is generally: Recouped at the end of the project.
Which of the following create cash inflows from net working capital? A.) Decrease in accounts payable and increase in accounts receivableB.) Decrease in both accounts receivable and accounts payableC.)Increase in accounts payable and decrease in inventoryD.) Increase in both accounts receivable and inventoryE.) Increase in inventory and decrease in cash Increase in accounts payable and decrease in inventory
Assume an all-equity firm has positive net earnings. The operating cash flow of this firm: Increases when the tax rate decreases.
Scenario analysis is best described as the determination of the: Reasonable range of project outcomes.
Sensitivity analysis:A.) looks at the most reasonably optimistic and pessimistic results for a project.B.) helps identify the variable within a project that presents the greatest forecasting risk.C.) is used for projects that cannot be analyzed by scenario analysis because the cash flows are unconventional.D.) is generally conducted prior to scenario analysis just to determine if the range of potential outcomes is acceptable.E.) illustrates how an increase in operating cash flow caused by changing both the revenue and the costs simultaneously will change the net present value for a project. Helps identify the variable within a project that presents the greatest forecasting risk.

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