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##### finance homework mcq

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Question;2. The net present value method assumes that cash flows from a;project are immediately reinvested at a rate of return equal to the discount;rate.;True False;3. When using internal rate of return to evaluate investment;projects, if the internal rate of return is less than the required rate of;return, the project would be accepted.;True False;4. In preference decision situations, a project with a high net;present value will always be preferable to a project with a lower net present;value.;True False;5. An investment project with a project profitability index of less;than zero should ordinarily be rejected.;True False;6. Screening decisions follow preference decisions and seek to rank;investment proposals in order of their desirability.;True False;7. The payback period is the length of time it takes for an;investment to recoup its initial cost out of the cash receipts it generates.;True False;14-7;9. One strength of the simple rate of return method is that it takes;into account the time value of money in computing the return on an investment;project.;True False;10. In capital budgeting decisions, a $10,000 decrease in annual cash;outflows can be treated as if it is a $10,000 increase in annual cash inflows.;True False;Multiple Choice Questions;11. A project profitability index greater than zero for a project;indicates that;A.;the discount rate is less;than the internal rate of return.;B. there has been a calculation error.;C.;the project is unattractive;and should not be pursued.;D.;the company should;reevaluate its discount rate.;14-8;A. Choice A;B.;Choice B;C. Choice C;D.;Choice D;E.;Choice E;13. The net present value method assumes that the project's cash flows;are reinvested at the: A. internal rate of return.;B. the simple rate of return.;C. the;discount rate used in the net present value calculation. D. the payback rate of;return.;14. The total-cost approach and the incremental-cost approach to;evaluating two competing investment opportunities;A. are dissimilar in that one deals with net present value and the;other deals with internal rate of return.;B. are similar in that they will recommend the same alternative as;the best.;C. are;dissimilar in that one uses the cost of capital as a discount rate and the;other does not. D. are similar in that neither considers the time value of;money.;14-9;A. Choice A;B.;Choice B;C. Choice C;D.;Choice D;16. Rennin Dairy Corporation is considering a plant expansion decision;that has an estimated useful life of 20 years. This project has an internal;rate of return of 15% and a payback period of 9.6 years. How would a decrease;in the expected salvage value from this project in 20 years affect the;following for this project?;A.;Choice A;B. Choice B;C.;Choice C;D. Choice D;E.;Choice E;14-10;internal rate of return.;D. does not take into account all of the cash flows from a;project.;18. Cresol Corporation has a large number of potential investment;opportunities that are acceptable. However, Cresol does not have enough;investment funds to invest in all of them. Which calculation would be the best;one for Cresol to use to determine which projects to choose?;A. payback period;B. simple rate of return C.;net present value;D. project profitability index;19.;The payback method measures;A.;how quickly investment;dollars may be recovered.;B. the cash flow from an investment.;C.;the economic life of an;investment.;D.;the project profitability of;an investment.;20. An investment project that requires a present investment of;$210,000 will have cash inflows of "R" dollars each year for the next;five years. The project will terminate in five years. Consider the following;statements (ignore income tax considerations);I. If "R" is less than $42,000, the payback period;exceeds the life of the project.;II. If "R" is greater than $42,000, the payback period;exceeds the life of the project. III. If "R" equals $42,000, the;payback period equals the life of the project.;Which statement(s) is (are) true?;A.;Only I and II.;B.;Only I and III.;C. Only II and III.;D. I, II, and III.;E.;none of these.;14-11;22. (Ignore income taxes in this problem.) Sue Falls is the president;of Sports, Inc. She is considering buying a new machine that would cost;$14,125. Sue has determined that the new machine promises an internal rate of;return of 12%, but Sue has misplaced the paper which tells the annual cost;savings promised by the new machine. She does remember that the machine has a;projected life of 10 years. Based on these data, the annual cost savings are;A. It is impossible to determine from the data given.;B.;$1,412.50 C. $2,500.00 D. $1,695.00;23. (Ignore income taxes in this problem.) Joe Flubup is the president;of Flubup, Inc. He is considering buying a new machine that would cost $25,470.;Joe has determined that the new machine promises an internal rate of return of;14%, but Joe has misplaced the paper which tells the annual cost savings;promised by the new machine. He does remember that the machine has a projected;life of 12 years. Based on these data, the annual cost savings are: A. It is;impossible to determine from the given data.;B.;$2,122.50 C. $4,500.00 D. $4,650.00;24. (Ignore income taxes in this problem.) Cuarto Corporation just;invested in a project that has an internal rate of return of 24%. This project;is expected to generate $44,000 of net cash inflows each year of its 6 year;life. The project has no salvage value. What was the initial investment;required for this project?;A. $63,360;B. $72,600 C. $132,880 D. $160,000;14-12;intangible benefits have to be to make this a financially;acceptable investment?;A.;$18,435;B.;$30,000;C. $35,000;D.;$37,236;26. (Ignore income taxes in this problem.) Given the following;data;Based on the data given, the annual cost savings would be;A.;$1,630.00;B.;$2,200.00;C. $2,123.89;D.;$2,553.89;27. (Ignore income taxes in;this problem.) Parks Company is considering an investment proposal in which a;working capital investment of $10,000 would be required. The investment would;provide cash inflows of $2,000 per year for six years. The working capital would;be released for use elsewhere when the project is completed. If the company's;discount rate is 10%, the investment's net present value is;A.;$1,290;B. $(1,290);C.;$2,000;D.;$4,350;14-13;The company's discount rate is 16%, and the machine will be;depreciated using the straight-line method. Given these data, the machine has a;net present value of;A. -$26,100;B.;-$23,900;C. $0;D.;+$26,100;29. (Ignore income taxes in this problem.) The Whitton Company uses a discount;rate of 16%. The company has an opportunity to buy a machine now for $18,000;that will yield cash inflows of $10,000 per year for each of the next three;years. The machine would have no salvage value. The net present value of this;machine to the nearest whole dollar is;A. $22,460 B. $4,460 C. $(9,980) D. $12,000;30.;(Ignore income taxes in this;problem.) The following data pertain to an investment;The net present value of the proposed investment is;A.;$3,355;B. $(3,430);C.;$0;D.;$621;14-14;B. $3,700;C. $20,500;D.;$(34,950)

Paper#50038 | Written in 18-Jul-2015

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