TIM 305 FINAL EXAM UPDATED ACTUAL QUESTIONS
AND CORRECT ANSWERS
Question:
A project's net present value is a measure of a project's contribution to firm
value.
Answer:
True
Question:
A project's net present value is the sum of the future values of the net cash
flows compounded at the required rate of return minus the net investment.
Answer:
False
Question:
The net present value is the ratio of a project's benefits to its costs and the
profitability index is the difference between a project's benefits and its costs.
Answer:
False
Question:
A project's payback period is the amount of time required for the project's net
cash flows to re-cover or pay back the net investment.
Answer:
True
Question:
The discounted payback period does not take into account the time value of
money.
Answer:
False
Question:
If a project's internal rate of return is greater (less) than the required rate of
return, the pro-ject is generally acceptable (unacceptable).
Answer:
True
Question:
A capital budgeting project's internal rate of re-turn is the rate of return
causing a project's net present value to equal the net investment.
Answer:
False
Question:
If a project's net present value is positive (negative), the project is generally
acceptable (unacceptable).
, Answer:
True
Question:
If a capital budgeting project's cash flows are not normal, the internal rate of
return method should be used to make the investment decision.
Answer:
False
Question:
What is the profitability index for an acceptable capital budgeting project?
Answer:
greater than 1
Question:
Which one of the following capital budgeting decision methods determines a
project's annual percentage rate of return?
Answer:
modified internal rate of return
Question:
Which of the following is true for a project with an expected net present value
of $200,000?
Answer:
The project is expected to increase firm value by $200,000 in present value
terms.
Question:
Which of the following methods properly ranks projects' contribution to firm
value when the projects have scale differences?
Answer:
net present value
Question:
Which of the following is not true of the payback period method?
Answer:
It fails to take into account a project's net cash flows after the payback period.
Question:
If a project is normal, which of the following is true for a project with an
internal rate of return exceeding the required rate of return?
Answer:
The net present value is positive
Question:
Which one of the following capital budgeting decision methods measures how
long it takes for a project's benefits to recover the project's cost?
Answer:
payback period
Question:
The payback period is a useful measure of a project's
AND CORRECT ANSWERS
Question:
A project's net present value is a measure of a project's contribution to firm
value.
Answer:
True
Question:
A project's net present value is the sum of the future values of the net cash
flows compounded at the required rate of return minus the net investment.
Answer:
False
Question:
The net present value is the ratio of a project's benefits to its costs and the
profitability index is the difference between a project's benefits and its costs.
Answer:
False
Question:
A project's payback period is the amount of time required for the project's net
cash flows to re-cover or pay back the net investment.
Answer:
True
Question:
The discounted payback period does not take into account the time value of
money.
Answer:
False
Question:
If a project's internal rate of return is greater (less) than the required rate of
return, the pro-ject is generally acceptable (unacceptable).
Answer:
True
Question:
A capital budgeting project's internal rate of re-turn is the rate of return
causing a project's net present value to equal the net investment.
Answer:
False
Question:
If a project's net present value is positive (negative), the project is generally
acceptable (unacceptable).
, Answer:
True
Question:
If a capital budgeting project's cash flows are not normal, the internal rate of
return method should be used to make the investment decision.
Answer:
False
Question:
What is the profitability index for an acceptable capital budgeting project?
Answer:
greater than 1
Question:
Which one of the following capital budgeting decision methods determines a
project's annual percentage rate of return?
Answer:
modified internal rate of return
Question:
Which of the following is true for a project with an expected net present value
of $200,000?
Answer:
The project is expected to increase firm value by $200,000 in present value
terms.
Question:
Which of the following methods properly ranks projects' contribution to firm
value when the projects have scale differences?
Answer:
net present value
Question:
Which of the following is not true of the payback period method?
Answer:
It fails to take into account a project's net cash flows after the payback period.
Question:
If a project is normal, which of the following is true for a project with an
internal rate of return exceeding the required rate of return?
Answer:
The net present value is positive
Question:
Which one of the following capital budgeting decision methods measures how
long it takes for a project's benefits to recover the project's cost?
Answer:
payback period
Question:
The payback period is a useful measure of a project's
