Finance Test 3

The net present value of an investment represents the difference between the investment’s: Cost and its market value
Discounted cash flow valuation is the process of discounting an investment’s: Future cash flows
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
The average net income of a project divided by the project’s average book value is referred to as the project’s: Average accounting return
Which one of the following defines the internal rate of return for a project: Discount rate which results in a zero net present value for the project.
The net present value profile illustrates how the net present value of an investment is affected by which one of the following? Discount rate
The possibility that more than one discount rate can cause the net present value of an investment to equal zero is referred to as: Multiple rates of return
Both Project 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
Which one of the following can be defined as a benefit-cost ratio? Profitability index
Which one of the following indicates that a project is expected to create value for its owners? Positive net present value
The net present value: Decreases as the required rate of return increases.
Which one of the following is generally considered to be the best form of analysis if you have to select a single method to analyze a variety of investment opportunities: Net present value
Which one of the following statements is correct? If the internal rate of return equals the required return, the net present value will equal zero.
If an investment is producing a return that is equal to the required return, the investment’s net present value will be: Zero
Which one of the following indicated indicates that a project should be rejected? Profitability index less than 1.0
Which one of the following indicators offers the best assurance that a project will produce value for its owners? Positive NPV
Which one of the following statements is correct? The payback period ignores the time value of money.
Payback is best used to evaluate which type of projects? Low-cost, short-term
Which one of the following is the primary advantage of payback analysis? Ease of use
The payback method of analysis ignores which one of the following? Time value of money

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