Chapterf09f-fNetfPresentfValuefandfOtherfInvestmentfCriteria
Chapter 09 f
Net Present Value and Other Investment Criteria
f f f f f f
ff
MultiplefChoicefQuestions
f
1.fAfprojectfhasfanfinitialfcostfoff$27,400fandfafmarketfvaluefoff$32,600.fWhatfisfthefdifferencefbet
weenftheseftwofvaluesfcalled?f
A.fnetfpresentfvalue
B.finternalfreturn
C.fpaybackfvalue
D.fprofitabilityfindex
E.fdiscountedfpayback
f
2.fWhichfonefofftheffollowingfmethodsfoffprojectfanalysisfisfdefinedfasfcomputingfthefvaluefoffafpr
ojectfbasedfuponfthefpresentfvaluefoffthefproject'sfanticipatedfcashfflows?f
A.fconstantfdividendfgrowthfmodel
B.fdiscountedfcashfflowfvaluation
C.faveragefaccountingfreturn
D.fexpectedfearningsfmodel
E.finternalfratefoffreturn
f
3.fTheflengthfofftimefaffirmfmustfwaitftofrecoupfthefmoneyfitfhasfinvestedfinfafprojectfisfcalledfthe:f
A.finternalfreturnfperiod.
B.fpaybackfperiod.
C.fprofitabilityfperiod.
D.fdiscountedfcashfperiod.
E.fvaluationfperiod.
f
4.fTheflengthfofftimefaffirmfmustfwaitftofrecoup,finfpresentfvaluefterms,fthefmoneyfitfhasfinfinveste
dfinfafprojectfisfreferredftofasfthe:f
A.fnetfpresentfvaluefperiod.
B.finternalfreturnfperiod.
C.fpaybackfperiod.
D.fdiscountedfprofitabilityfperiod.
E.fdiscountedfpaybackfperiod.
f
9-1
,Chapterf09f-fNetfPresentfValuefandfOtherfInvestmentfCriteria
5.fAfproject'sfaveragefnetfincomefdividedfbyfitsfaveragefbookfvaluefisfreferredftofasfthefproject'sfav
erage:f
A.fnetfpresentfvalue.
B.finternalfratefoffreturn.
C.faccountingfreturn.
D.fprofitabilityfindex.
E.fpaybackfperiod.
f
6.fThefinternalfratefoffreturnfisfdefinedfasfthe:f
A.fmaximumfratefoffreturnfaffirmfexpectsftofearnfonfafproject.
B.fratefoffreturnfafprojectfwillfgeneratefiffthefprojectfinffinancedfsolelyfwithfinternalffunds.
C.fdiscountfratefthatfequatesfthefnetfcashfinflowsfoffafprojectftofzero.
D.fdiscountfratefwhichfcausesfthefnetfpresentfvaluefoffafprojectftofequalfzero.
E.fdiscountfratefthatfcausesfthefprofitabilityfindexfforfafprojectftofequalfzero.
f
7.fYoufarefviewingfafgraphfthatfplotsfthefNPVsfoffafprojectftofvariousfdiscountfratesfthatfcouldfbefa
ppliedftofthefproject'sfcashfflows.fWhatfisfthefnamefgivenftofthisfgraph?f
A.fprojectftract
B.fprojectedfriskfprofile
C.fNPVfprofile
D.fNPVfroute
E.fpresentfvaluefsequence
f
8.fTherefareftwofdistinctfdiscountfratesfatfwhichfafparticularfprojectfwillfhavefafzerofnetfpresentfval
ue.fInfthisfsituation,fthefprojectfisfsaidfto:f
A.fhaveftwofnetfpresentfvaluefprofiles.
B.fhavefoperationalfambiguity.
C.fcreatefafmutuallyfexclusivefinvestmentfdecision.
D.fproducefmultiplefeconomiesfoffscale.
E.fhavefmultiplefratesfoffreturn.
f
9-2
,Chapterf09f-fNetfPresentfValuefandfOtherfInvestmentfCriteria
9.fIffaffirmfacceptsfProjectfAfitfwillfnotfbeffeasibleftofalsofacceptfProjectfBfbecausefbothfprojectsfw
ouldfrequirefthefsimultaneousfandfexclusivefusefoffthefsamefpiecefoffmachinery.fThesefprojectsfar
efconsideredftofbe:f
A.findependent.
B.finterdependent.
C.fmutuallyfexclusive.
D.feconomicallyfscaled.
E.foperationallyfdistinct.
f
10.fThefpresentfvaluefoffanfinvestment'sffuturefcashfflowsfdividedfbyfthefinitialfcostfoffthefinvestm
entfisfcalledfthe:f
A.fnetfpresentfvalue.
B.finternalfratefoffreturn.
C.faveragefaccountingfreturn.
D.fprofitabilityfindex.
E.fprofilefperiod.
f
11.fAfprojectfhasfafnetfpresentfvaluefoffzero.fWhichfonefofftheffollowingfbestfdescribesfthisfproject
?f
A.fThefprojectfhasfafzerofpercentfratefoffreturn.
B.fThefprojectfrequiresfnofinitialfcashfinvestment.
C.fThefprojectfhasfnofcashfflows.
D.fThefsummationfoffallfoffthefproject'sfcashfflowsfisfzero.
E.fThefproject'sfcashfinflowsfequalfitsfcashfoutflowsfinfcurrentfdollarfterms.
f
12.fWhichfonefofftheffollowingfwillfdecreasefthefnetfpresentfvaluefoffafproject?f
A.fincreasingfthefvaluefoffeachfoffthefproject'sfdiscountedfcashfinflows
B.fmovingfeachfoffthefcashfinflowsfbackftofaflaterftimefperiod
C.fdecreasingfthefrequiredfdiscountfrate
D.fincreasingfthefproject'sfinitialfcostfatftimefzero
E.fincreasingfthefamountfofftheffinalfcashfinflow
f
9-3
, Chapterf09f-fNetfPresentfValuefandfOtherfInvestmentfCriteria
13.fWhichfonefofftheffollowingfmethodsfdeterminesfthefamountfoffthefchangefafproposedfprojectf
willfhavefonfthefvaluefoffaffirm?f
A.fnetfpresentfvalue
B.fdiscountedfpayback
C.finternalfratefoffreturn
D.fprofitabilityfindex
E.fpayback
f
14.fIffafprojectfhasfafnetfpresentfvaluefequalftofzero,fthen:f
A.ftheftotalfoffthefcashfinflowsfmustfequalfthefinitialfcostfoffthefproject.
B.fthefprojectfearnsfafreturnfexactlyfequalftofthefdiscountfrate.
C.fafdecreasefinfthefproject'sfinitialfcostfwillfcausefthefprojectftofhavefafnegativefNPV.
D.fanyfdelayfinfreceivingfthefprojectedfcashfinflowsfwillfcausefthefprojectftofhavefafpositivefNPV.
E.fthefproject'sfPIfmustfbefalsofbefequalftofzero.
f
15.fRossiterfRestaurantsfisfanalyzingfafprojectfthatfrequiresf$180,000fofffixedfassets.fWhenfthefpr
ojectfends,fthosefassetsfarefexpectedftofhavefanfaftertaxfsalvagefvaluefoff$45,000.fHowfisfthef$45,
000fsalvagefvaluefhandledfwhenfcomputingfthefnetfpresentfvaluefoffthefproject?f
A.freductionfinfthefcashfoutflowfatftimefzero
B.fcashfinflowfinftheffinalfyearfoffthefproject
C.fcashfinflowfforfthefyearffollowingftheffinalfyearfoffthefproject
D.fcashfinflowfproratedfoverftheflifefoffthefproject
E.fnotfincludedfinfthefnetfpresentfvalue
f
16.fWhichfonefofftheffollowingfincreasesfthefnetfpresentfvaluefoffafproject?f
A.fanfincreasefinfthefrequiredfratefoffreturn
B.fanfincreasefinfthefinitialfcapitalfrequirement
C.fafdefermentfoffsomefcashfinflowsfuntilfaflaterfyear
D.fanfincreasefinfthefaftertaxfsalvagefvaluefofftheffixedfassets
E.fafreductionfinftheffinalfcashfinflow
f
9-4
Chapter 09 f
Net Present Value and Other Investment Criteria
f f f f f f
ff
MultiplefChoicefQuestions
f
1.fAfprojectfhasfanfinitialfcostfoff$27,400fandfafmarketfvaluefoff$32,600.fWhatfisfthefdifferencefbet
weenftheseftwofvaluesfcalled?f
A.fnetfpresentfvalue
B.finternalfreturn
C.fpaybackfvalue
D.fprofitabilityfindex
E.fdiscountedfpayback
f
2.fWhichfonefofftheffollowingfmethodsfoffprojectfanalysisfisfdefinedfasfcomputingfthefvaluefoffafpr
ojectfbasedfuponfthefpresentfvaluefoffthefproject'sfanticipatedfcashfflows?f
A.fconstantfdividendfgrowthfmodel
B.fdiscountedfcashfflowfvaluation
C.faveragefaccountingfreturn
D.fexpectedfearningsfmodel
E.finternalfratefoffreturn
f
3.fTheflengthfofftimefaffirmfmustfwaitftofrecoupfthefmoneyfitfhasfinvestedfinfafprojectfisfcalledfthe:f
A.finternalfreturnfperiod.
B.fpaybackfperiod.
C.fprofitabilityfperiod.
D.fdiscountedfcashfperiod.
E.fvaluationfperiod.
f
4.fTheflengthfofftimefaffirmfmustfwaitftofrecoup,finfpresentfvaluefterms,fthefmoneyfitfhasfinfinveste
dfinfafprojectfisfreferredftofasfthe:f
A.fnetfpresentfvaluefperiod.
B.finternalfreturnfperiod.
C.fpaybackfperiod.
D.fdiscountedfprofitabilityfperiod.
E.fdiscountedfpaybackfperiod.
f
9-1
,Chapterf09f-fNetfPresentfValuefandfOtherfInvestmentfCriteria
5.fAfproject'sfaveragefnetfincomefdividedfbyfitsfaveragefbookfvaluefisfreferredftofasfthefproject'sfav
erage:f
A.fnetfpresentfvalue.
B.finternalfratefoffreturn.
C.faccountingfreturn.
D.fprofitabilityfindex.
E.fpaybackfperiod.
f
6.fThefinternalfratefoffreturnfisfdefinedfasfthe:f
A.fmaximumfratefoffreturnfaffirmfexpectsftofearnfonfafproject.
B.fratefoffreturnfafprojectfwillfgeneratefiffthefprojectfinffinancedfsolelyfwithfinternalffunds.
C.fdiscountfratefthatfequatesfthefnetfcashfinflowsfoffafprojectftofzero.
D.fdiscountfratefwhichfcausesfthefnetfpresentfvaluefoffafprojectftofequalfzero.
E.fdiscountfratefthatfcausesfthefprofitabilityfindexfforfafprojectftofequalfzero.
f
7.fYoufarefviewingfafgraphfthatfplotsfthefNPVsfoffafprojectftofvariousfdiscountfratesfthatfcouldfbefa
ppliedftofthefproject'sfcashfflows.fWhatfisfthefnamefgivenftofthisfgraph?f
A.fprojectftract
B.fprojectedfriskfprofile
C.fNPVfprofile
D.fNPVfroute
E.fpresentfvaluefsequence
f
8.fTherefareftwofdistinctfdiscountfratesfatfwhichfafparticularfprojectfwillfhavefafzerofnetfpresentfval
ue.fInfthisfsituation,fthefprojectfisfsaidfto:f
A.fhaveftwofnetfpresentfvaluefprofiles.
B.fhavefoperationalfambiguity.
C.fcreatefafmutuallyfexclusivefinvestmentfdecision.
D.fproducefmultiplefeconomiesfoffscale.
E.fhavefmultiplefratesfoffreturn.
f
9-2
,Chapterf09f-fNetfPresentfValuefandfOtherfInvestmentfCriteria
9.fIffaffirmfacceptsfProjectfAfitfwillfnotfbeffeasibleftofalsofacceptfProjectfBfbecausefbothfprojectsfw
ouldfrequirefthefsimultaneousfandfexclusivefusefoffthefsamefpiecefoffmachinery.fThesefprojectsfar
efconsideredftofbe:f
A.findependent.
B.finterdependent.
C.fmutuallyfexclusive.
D.feconomicallyfscaled.
E.foperationallyfdistinct.
f
10.fThefpresentfvaluefoffanfinvestment'sffuturefcashfflowsfdividedfbyfthefinitialfcostfoffthefinvestm
entfisfcalledfthe:f
A.fnetfpresentfvalue.
B.finternalfratefoffreturn.
C.faveragefaccountingfreturn.
D.fprofitabilityfindex.
E.fprofilefperiod.
f
11.fAfprojectfhasfafnetfpresentfvaluefoffzero.fWhichfonefofftheffollowingfbestfdescribesfthisfproject
?f
A.fThefprojectfhasfafzerofpercentfratefoffreturn.
B.fThefprojectfrequiresfnofinitialfcashfinvestment.
C.fThefprojectfhasfnofcashfflows.
D.fThefsummationfoffallfoffthefproject'sfcashfflowsfisfzero.
E.fThefproject'sfcashfinflowsfequalfitsfcashfoutflowsfinfcurrentfdollarfterms.
f
12.fWhichfonefofftheffollowingfwillfdecreasefthefnetfpresentfvaluefoffafproject?f
A.fincreasingfthefvaluefoffeachfoffthefproject'sfdiscountedfcashfinflows
B.fmovingfeachfoffthefcashfinflowsfbackftofaflaterftimefperiod
C.fdecreasingfthefrequiredfdiscountfrate
D.fincreasingfthefproject'sfinitialfcostfatftimefzero
E.fincreasingfthefamountfofftheffinalfcashfinflow
f
9-3
, Chapterf09f-fNetfPresentfValuefandfOtherfInvestmentfCriteria
13.fWhichfonefofftheffollowingfmethodsfdeterminesfthefamountfoffthefchangefafproposedfprojectf
willfhavefonfthefvaluefoffaffirm?f
A.fnetfpresentfvalue
B.fdiscountedfpayback
C.finternalfratefoffreturn
D.fprofitabilityfindex
E.fpayback
f
14.fIffafprojectfhasfafnetfpresentfvaluefequalftofzero,fthen:f
A.ftheftotalfoffthefcashfinflowsfmustfequalfthefinitialfcostfoffthefproject.
B.fthefprojectfearnsfafreturnfexactlyfequalftofthefdiscountfrate.
C.fafdecreasefinfthefproject'sfinitialfcostfwillfcausefthefprojectftofhavefafnegativefNPV.
D.fanyfdelayfinfreceivingfthefprojectedfcashfinflowsfwillfcausefthefprojectftofhavefafpositivefNPV.
E.fthefproject'sfPIfmustfbefalsofbefequalftofzero.
f
15.fRossiterfRestaurantsfisfanalyzingfafprojectfthatfrequiresf$180,000fofffixedfassets.fWhenfthefpr
ojectfends,fthosefassetsfarefexpectedftofhavefanfaftertaxfsalvagefvaluefoff$45,000.fHowfisfthef$45,
000fsalvagefvaluefhandledfwhenfcomputingfthefnetfpresentfvaluefoffthefproject?f
A.freductionfinfthefcashfoutflowfatftimefzero
B.fcashfinflowfinftheffinalfyearfoffthefproject
C.fcashfinflowfforfthefyearffollowingftheffinalfyearfoffthefproject
D.fcashfinflowfproratedfoverftheflifefoffthefproject
E.fnotfincludedfinfthefnetfpresentfvalue
f
16.fWhichfonefofftheffollowingfincreasesfthefnetfpresentfvaluefoffafproject?f
A.fanfincreasefinfthefrequiredfratefoffreturn
B.fanfincreasefinfthefinitialfcapitalfrequirement
C.fafdefermentfoffsomefcashfinflowsfuntilfaflaterfyear
D.fanfincreasefinfthefaftertaxfsalvagefvaluefofftheffixedfassets
E.fafreductionfinftheffinalfcashfinflow
f
9-4
