# Finance Chapter 9 Quiz

 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. An investment’s average net income divided by its average book value defines the average: accounting return. The discount rate that makes the net present value of an investment exactly equal to zero is called the: internal rate of return. A situation in which accepting one investment prevents the acceptance of another investment is called the: mutually exclusive investment decision. The internal rate of return (IRR): I. rule states that a project is acceptable when the IRR exceeds the required rate of return.II. ignores the initial investment in a project.III. is the rate that causes the net present value of a project to equal zero.IV. can effectively be used to analyze all investment scenarios. I and III only When the present value of the cash inflows exceeds the initial cost of a project, then the project should be: accepted because the NPV is greater than 0. Courtney is analyzing two mutually exclusive projects of similar size and has compiled the following information based on her analysis. Both projects have four year lives. Courtney has been asked for her best recommendation given this information. Her recommendation should be to accept: project B and reject project A based on their net present values. You are considering the following two mutually exclusive projects. The required rate of return is 10.75 percent for project A and 12 percent for project B. Which project should you accept and why? project A; because its NPV is about \$796 more than the NPV of project B An investment has the following cash flows. Should the project be accepted if it has been assigned a required return of 14 percent? Why or why not? Yes; The IRR exceeds the required return by about 1.08 percent. A project produces annual net income of \$11,500, \$13,700, and \$16,900 over the three years of its life, respectively. The initial cost of the project is \$257,000. This cost is depreciated straight-line to a zero book value over three years. What is the average accounting rate of return if the required discount rate is 6.75 percent? 10.92 percent It will cost \$3,500 to acquire a small hot dog cart. Cart sales are expected to be \$1,500 a year for three years. After the three years, the cart is expected to be worthless as that is the expected remaining life of the cart. What is the payback period? 2.33 years
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