MGMT 310 Exam 2 Review Questions with Correct Answers (Grade
A+)
Question 1: The difference between the market value and initial cost of a project is known as:
Answer: net present value
Question 2: A project's net income divided by its average book value is referred to as the project's:
Answer: average accounting return
Question 3: The internal rate of return is defined as the discount rate which causes the net present
value of a project to:
Answer: equal zero
Question 4: If a firm accepts Project A it will not be feasible to also accept Project B because projects
would require the simultaneous and exclusive use of the same piece of machinery. These projects are
considered to be:
Answer: mutually exclusive
Question 5: As project has a net present value of zero. Which of the following best describes this
project?
A. The project has a zero percent rate of return
B. The project requires no initial cash investment
C. The project has no cash flows
D. The summation of all of the project's cash flows is zero
E. The project's cash inflows equal its cash outflows in current dollar terms
Answer: E. The project's cash inflows equal its cash outflows in current dollar terms
Question 6: If a project has a net present value equal to zero, then:
A. The total of the cash inflows must equal the initial cost of the project
B. The project earns a return exactly equal to the discount rate
C. A decrease in the project's initial cost will cause the project to have a negative PV
D. Any delay in receiving the projected cash inflows will cause the project to have a positive NPV
E. The project's PI also must be equal to zero
Answer: B. The project earns a return exactly equal to the discount rate
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A+)
Question 1: The difference between the market value and initial cost of a project is known as:
Answer: net present value
Question 2: A project's net income divided by its average book value is referred to as the project's:
Answer: average accounting return
Question 3: The internal rate of return is defined as the discount rate which causes the net present
value of a project to:
Answer: equal zero
Question 4: If a firm accepts Project A it will not be feasible to also accept Project B because projects
would require the simultaneous and exclusive use of the same piece of machinery. These projects are
considered to be:
Answer: mutually exclusive
Question 5: As project has a net present value of zero. Which of the following best describes this
project?
A. The project has a zero percent rate of return
B. The project requires no initial cash investment
C. The project has no cash flows
D. The summation of all of the project's cash flows is zero
E. The project's cash inflows equal its cash outflows in current dollar terms
Answer: E. The project's cash inflows equal its cash outflows in current dollar terms
Question 6: If a project has a net present value equal to zero, then:
A. The total of the cash inflows must equal the initial cost of the project
B. The project earns a return exactly equal to the discount rate
C. A decrease in the project's initial cost will cause the project to have a negative PV
D. Any delay in receiving the projected cash inflows will cause the project to have a positive NPV
E. The project's PI also must be equal to zero
Answer: B. The project earns a return exactly equal to the discount rate
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