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##### Please see below finance questions Question 1...

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Please see below finance questions Question 1 Using a payback period investment criterion tends to bias us toward what kind of investments? Select one: a. riskier investment b. less risky investments c. longer-term investments d. shorter-term investments e. lower return investments Question 2 If the cutoff point were forever, then the discounted payback rule would be the same as which of the following investment criteria? Select one: a. Net Present Value b. Profitability Index c. Average Accounting Return d. Internal Rate of Return e. both a and b Question 3 Which of the following is NOT a disadvantage of the average accounting return criterion? Select one: a. it is not a true rate of return b. it uses an arbitrary benchmark cutoff rate c. it is based on book values and not market values d. it may lead to incorrect decisions when comparing mutually exclusive investments e. none of the above Question 4 Ultimately, a good capital budgeting criterion must tell us two things. What are they? It should tell us if a particular project is a good investment. If there is more than one good mutually exclusive project, it should tell us which one to take. If there is more than one investment criteria used, it should tell us which one is best. Select one: a. I and II b. I and III c. II and III d. I, II, and III e. None of the choices are valid. Question 5 To break-even in an accounting sense, a firm would use the _________ investment criterion. Select one: a. net present value b. profitability index c. payback period d. discounted payback period e. none of the above Question 6 A project has an initial cash outlay of $750,000 and an annual cash inflow of $220,000 for the next 5 years. The assets involved in the project can be sold for $50,000 when the project is completed. The required rate of return on the project is 15%. Should the project be accepted based on the NPV rule? Select one: a. No, the project should not be accepted as the NPV is -$37,385. b. No, the project should not be accepted as the NPV is -$12,526. c. Yes, the project should be accepted as the NPV is $0. d. Yes, the project should be accepted as the NPV is $12,333. e. Yes, the project should be accepted as the NPV is $37,474. Question 7 ABC Company has a project that will yield cash inflows of $50,000, $60,000, $70,000, $60,000, and $50,000 in the next 5 years. The project requires an initial cash outlay of $205,000 and a required return of 11%. The company uses the payback period investment criterion. Should ABC invest in this project if its payback cutoff is 4 years? Select one: a. Yes, because the payback period of 2 years and 4 months is shorter than the payback cutoff. b. No, because the payback period of 3 years and 4 months is shorter than the payback cutoff. c. Yes, because the payback period of 3 years and 5 months is shorter than the payback cutoff. d. No, because the payback period of 4 years and 4 months is longer than the payback cutoff. e. Yes, because the payback period of 4 years and 5 months is longer than the payback cutoff. Question 8 DEF Ltd. has the opportunity to invest in a project with the cash flow stream below. What is the discounted payback period on this project if the required return is 15%? year cash flow 0 -1,000,000 1 450,000 2 550,000 3 350, 000 4 350,000 Select one: a. 2 years and 8 months b. 2 years and 10 months c. 3 years and 8 months d. 3 years and 10 months e. 4 years and 8 months Question 9 GHI Inc. has a project with the following payoff structure and a required return of 16%. What is the IRR of this project and should the firm accept or reject it? Year Cash Flow 0 -1,250,000 1 450,000 2 550,000 3 350,000 4 350,000 Select one: a. 14%; accept b. 14.5%; reject c. 15%; accept d. 15.5%; reject e. 16%; accept A project has an initial cash outlay of $100,000 and cash inflows of $20,000 for the next 10 years. If the required return is 10%, what is the profitability index of this project and should it be accepted or rejected? Select one: a. 2; accept b. 1.35; reject c. 1.58; accept d. 1.74; reject e. 1.23; accept

Paper#2607 | Written in 18-Jul-2015

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