Question 1

A firm is reviewing a project that has an initial cost of $67,000.The project will produce annual cash inflows, starting with Year 1, of $8,000, $13,400, $18,600, $24,100, and finally in Year 5, $37,900.What is the profitability index if the discount rate is 11 percent?
A).92
B).98
C)1.02
D)1.05
E)1.09

Accepted Answer

The answer of A firm is reviewing a project that...

Question 2

A project has the following cash flows.What is the internal rate of return? 
A)15.17 percent
B)13.41 percent
C)13.68 percent
D)12.53 percent
E)13.15 percent

Accepted Answer

The answer of A project has the following cash flows.What...

Question 3

You are considering the following two mutually exclusive projects.The crossover point is _____ percent and Project _____ should be accepted at a discount rate of 9 percent. 
A)15.68 percent; B
B)11.38 percent; A
C)11.38 percent; B
D)15.68 percent; A
E)14.02 percent; B

Accepted Answer

The answer of You are considering the following two mutually...

Question 4

You are considering the following two mutually exclusive projects.The crossover point is _____ and Project _____ should be accepted if the discount rate is 14 percent. 
A)13.28 percent; B
B)13.28 percent; A
C)0 percent; B
D)15.96 percent; A
E)15.96 percent; B

Accepted Answer

The answer of You are considering the following two mutually...

Question 5

Performance Needlework needs to purchase a new machine costing $1.25 million.Management is estimating the machine will generate cash inflows of $175,000 the first year and $ 500,000 for the following three years.If management requires a minimum 10 percent rate of return, should the firm purchase this particular machine based on its IRR? Why or why not?
A)Yes, because the IRR is 10.75 percent
B)Yes, because the IRR is 11.28 percent
C)No, because the IRR is 10.75 percent
D)No, because the IRR is 11.28 percent
E)The answer cannot be determined as there are multiple IRRs

Accepted Answer

The IRR of 11.28 percent is greater than the required rate of return of 10 percent, indicating that the investment is expected to generate returns above the minimum threshold, making it a favorable investment.

Question 6

Soft and Cuddly is considering a new toy that will produce the following cash flows.Should the company produce this toy based on IRR if the firm requires a rate of return of 17.5 percent? 
A)Yes, because the project's rate of return is 16.45 percent
B)Yes, because the project's rate of return is 11.47 percent
C)No, because the project's rate of return is 16.45 percent
D)No, because the project's rate of return is 11.47 percent
E)No, because the internal rate of return is zero percent

Accepted Answer

The answer of Soft and Cuddly is considering a new...

Question 7

Diamond Enterprises is considering a project that will produce cash inflows of $41,650 a year for three years followed by $49,000 in Year 4.What is the internal rate of return if the initial cost of the project is $219,000?
A)9.43 percent
B)8.29 percent
C)7.81 percent
D)8.42 percent
E)7.55 percent

Accepted Answer

The answer of Diamond Enterprises is considering a project that...

Question 8

You are considering the following two mutually exclusive projects.What is the crossover point? 
A)20.76 percent
B)23.72 percent
C)25.89 percent
D)18.79 percent
E)22.08 percent

Accepted Answer

The answer of You are considering the following two mutually...

Question 9

Baker's Supply imposes a payback cutoff of 3.5 years for its international investment projects.If the company has the following two projects available, which project(s), if either, should it accept? 
A)Reject both Projects A and B
B)Accept Project A but not Project B
C)Accept Project B but not Project A
D)Both Project A and B are acceptable but you can select only one project
E)Accept both Projects A and B

Accepted Answer

The answer of Baker's Supply imposes a payback cutoff of...

Question 10

A project has the following cash flows.What is the internal rate of return? 
A)5.43 percent
B)5.50 percent
C)5.92 percent
D)5.57 percent
E)5.53 percent

Accepted Answer

The answer of A project has the following cash flows.What...

Question 11

Miller Brothers is considering a project that will produce cash inflows of $32,500, $38,470, $40,805, and $41,268 a year for the next four years, respectively.What is the internal rate of return if the initial cost of the project is $184,600?
A)7.39 percent
B)6.86 percent
C)6.47 percent
D)7.62 percent
E)6.24 percent

Accepted Answer

The answer of Miller Brothers is considering a project that...

Question 12

The Black Horse is currently considering a project that will produce cash inflows of $11,000 a year for three years followed by $6,500 in Year 4.The cost of the project is $38,000.What is the profitability index if the discount rate is 9 percent?
A).85
B).93
C)1.04
D)1.09
E)1.12

Accepted Answer

The answer of The Black Horse is currently considering a...

Question 13

A project has expected cash inflows, starting with Year 1, of $900, $1,200, $1,500, and finally in Year 4, $2,000.The profitability index is 1.11 and the discount rate is 12 percent.What is the initial cost of the project?
A)$3,899.16
B)$4,098.24
C)$3,692.71
D)$3,211.06
E)$4,250.00

Accepted Answer

The profitability index (PI) is calculated as the present value of future cash flows divided by the initial investment. Given PI = 1.11, the initial cost can be found by dividing the present value of cash inflows by 1.11. Calculating the present value of cash inflows at a 12% discount rate and dividing by 1.11 gives approximately $3,692.71.

Question 14

The net present value of a project's cash inflows is $2,716 at a discount rate of 12 percent.The profitability index is 1.09 and the firm's tax rate is 34 percent.What is the initial cost of the project?
A)$2,314.07
B)$2,018.50
C)$2,428.32
D)$2,491.74
E)$2,066.67

Accepted Answer

The profitability index (PI) is calculated as the present value of future cash inflows divided by the initial investment. Given PI = 1.09 and NPV = $2,716, we can set up the equation: 1.09 = (PV of inflows) / Initial Cost. Since NPV = PV of inflows - Initial Cost, we have $2,716 = (1.09 * Initial Cost) - Initial Cost. Solving for Initial Cost gives $2,491.74.

Question 15

You are considering the following two mutually exclusive projects.The required return on each project is 14 percent.Which project should you accept and what is the best reason for that decision? 
A)Project A; because it pays back faster
B)Project A; because it has the higher profitability index
C)Project B; because it has the higher profitability index
D)Project B; because it has the higher net present value
E)Project A; because it has the higher net present value

Accepted Answer

The answer of You are considering the following two mutually...

Question 16

Chasteen, Inc., is considering an investment with an initial cost of $145,000 that would be depreciated straight-line to a zero book value over the life of the project.The cash inflows generated by the project are estimated at $76,000 for the first two years and $30,000 for the following two years.What is the internal rate of return?
A)21.44 percent
B)21.29 percent
C)17.43 percent
D)17.55 percent
E)20.11 percent

Accepted Answer

The answer of Chasteen, Inc., is considering an investment with...

Question 17

You are considering the following two mutually exclusive projects.The required return on each project is 12 percent.Which project should you accept and what is the best reason for that decision? 
A)Project A, because it pays back faster
B)Project A, because it has the higher internal rate of return
C)Project B, because it has the higher internal rate of return
D)Project A, because it has the higher net present value
E)Project B, because it has the higher net present value

Accepted Answer

The answer of You are considering the following two mutually...

Question 18

The Flour Baker is considering a project with the following cash flows.Should this project be accepted based on its internal rate of return if the required return is 18 percent? 
A)Yes; because the project's rate of return is 7.78 percent
B)Yes; because the project's rate of return is 16.08 percent
C)Yes; because the project's rate of return is 19.47 percent
D)No; because the project's rate of return is 19.47 percent
E)No; because the project's rate of return is 16.08 percent

Accepted Answer

The answer of The Flour Baker is considering a project...

Question 19

You are considering an investment for which you require a rate of return of 8.5 percent.The investment costs $ 53,500 and will produce cash inflows of $20,000 for three years.Should you accept this project based on its internal rate of return? Why or why not?
A)Yes; because the IRR is 5.96 percent
B)Yes; because the IRR is 9.56 percent
C)Yes; because the IRR is 8.50 percent
D)No; because the IRR is 9.56percent
E)No'; because the IRR is 5.96 percent

Accepted Answer

The answer of You are considering an investment for which...

Question 20

The Steel Factory is considering a project that will produce annual cash flows of $43,800, $40,200, $46,200, and $41,800 over the next four years, respectively.What is the internal rate of return if the initial cost of the project is $127,900?
A)13.00 percent
B)10.19 percent
C)11.28 percent
D)12.24 percent
E)12.83 percent

Accepted Answer

The answer of The Steel Factory is considering a project...

Quiz 8: Net Present Value and Other Investment Criteria

A firm is reviewing a project that has an initial cost of $67,000.The project will produce annual cash inflows, starting with Year 1, of $8,000, $13,400, $18,600, $24,100, and finally in Year 5, $37,900.What is the profitability index if the discount rate is 11 percent?

A project has the following cash flows.What is the internal rate of return?

You are considering the following two mutually exclusive projects.The crossover point is _ percent and Project _ should be accepted at a discount rate of 9 percent.

You are considering the following two mutually exclusive projects.The crossover point is _ and Project _ should be accepted if the discount rate is 14 percent.

Soft and Cuddly is considering a new toy that will produce the following cash flows.Should the company produce this toy based on IRR if the firm requires a rate of return of 17.5 percent?

Diamond Enterprises is considering a project that will produce cash inflows of $41,650 a year for three years followed by $49,000 in Year 4.What is the internal rate of return if the initial cost of the project is $219,000?

You are considering the following two mutually exclusive projects.What is the crossover point?

Baker's Supply imposes a payback cutoff of 3.5 years for its international investment projects.If the company has the following two projects available, which project(s) , if either, should it accept?

A project has the following cash flows.What is the internal rate of return?

Miller Brothers is considering a project that will produce cash inflows of $32,500, $38,470, $40,805, and $41,268 a year for the next four years, respectively.What is the internal rate of return if the initial cost of the project is $184,600?

The Black Horse is currently considering a project that will produce cash inflows of $11,000 a year for three years followed by $6,500 in Year 4.The cost of the project is $38,000.What is the profitability index if the discount rate is 9 percent?

A project has expected cash inflows, starting with Year 1, of $900, $1,200, $1,500, and finally in Year 4, $2,000.The profitability index is 1.11 and the discount rate is 12 percent.What is the initial cost of the project?

The net present value of a project's cash inflows is $2,716 at a discount rate of 12 percent.The profitability index is 1.09 and the firm's tax rate is 34 percent.What is the initial cost of the project?

You are considering the following two mutually exclusive projects.The required return on each project is 14 percent.Which project should you accept and what is the best reason for that decision?

You are considering the following two mutually exclusive projects.The required return on each project is 12 percent.Which project should you accept and what is the best reason for that decision?

The Flour Baker is considering a project with the following cash flows.Should this project be accepted based on its internal rate of return if the required return is 18 percent?

You are considering an investment for which you require a rate of return of 8.5 percent.The investment costs $ 53,500 and will produce cash inflows of $20,000 for three years.Should you accept this project based on its internal rate of return? Why or why not?

The Steel Factory is considering a project that will produce annual cash flows of $43,800, $40,200, $46,200, and $41,800 over the next four years, respectively.What is the internal rate of return if the initial cost of the project is $127,900?