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Question;65. You are considering an investment with the;following cash flows. If the required rate of return for this investment is;15.5 percent, should you accept the investment based solely on the internal;rate of return rule? Why or why not?;A. Yes, The IRR exceeds the required return.;B. Yes, The IRR is less than the required return.;C. No, The IRR is less than the required return.;D. No, The IRR exceeds the required return.;E. You cannot apply the IRR rule in this case.;66. Blue Water Systems is analyzing a project with the;following cash flows. Should this project be accepted based on the discounting;approach to the modified internal rate of return if the discount rate is 14;percent? Why or why not?;A. Yes, The MIRR is 13.48 percent.;B. Yes, The MIRR is 17.85 percent.;C. Yes, The MIRR is 21.23 percent.;D. No, The MIRR is 5.73 percent.;E. No, The MIRR is 17.85 percent.;67. Sheakley Industries is considering expanding its;current line of business and has developed the following expected cash flows;for the project. Should this project be accepted based on the discounting;approach to the modified internal rate of return if the discount rate is 13.4;percent? Why or why not?;A. Yes, The MIRR is 6.50 percent.;B. Yes, The MIRR is 7.59 percent.;C. Yes, The MIRR is 8.23 percent.;D. No, The MIRR is 6.50 percent.;E. No, The MIRR is 7.59 percent.;68. Cool Water Drinks is considering a proposed;project with the following cash flows. Should this project be accepted based on;the combined approach to the modified internal rate of return if both the;discount rate and the reinvestment rate are 12.6 percent? Why or why not?;A. Yes, The MIRR is 8.81 percent.;B. Yes, The MIRR is 9.23 percent.;C. No, The MIRR is 8.81 percent.;D. No, The MIRR is 9.06 percent.;E. No, The MIRR is 9.23 percent.;69. Home D?cor & More is considering a proposed;project with the following cash flows. Should this project be accepted based on;the combination approach to the modified internal rate of return if both the;discount rate and the reinvestment rate are 16 percent? Why or why not?;A. Yes, The MIRR is 14.78 percent.;B. Yes, The MIRR is 15.64 percent.;C. No, The MIRR is 12.91 percent.;D. No, The MIRR is 14.78 percent.;E. No, The MIRR is 15.64 percent;70. What is the profitability index for an investment;with the following cash flows given a 14.5 percent required return?;A. 0.94;B. 0.98;C. 1.02;D. 1.06;E. 1.11;71. Based on the profitability index rule, should a;project with the following cash flows be accepted if the discount rate is 14;percent? Why or why not?;A. Yes, The PI is 0.96.;B. Yes, The PI is 1.04.;C. Yes, The PI is 1.08.;D. No, The PI is 0.96.;E. No, The PI is 1.04.;72. You are considering two independent projects both;of which have been assigned a discount rate of 15 percent. Based on the;profitability index, what is your recommendation concerning these projects?;A. You should accept both projects.;B. You should reject both projects.;C. You should accept project A and reject project B.;D. You should accept project B and reject project A.;E. You should accept project A and be indifferent to project B.;73. You would like to invest in the following project.;Sis, your boss, insists that only projects returning at least $1.06 in today's;dollars for every $1 invested can be accepted. She also insists on applying a;14 percent discount rate to all cash flows. Based on these criteria, you should;A. accept the project because the PI is 0.90.;B. accept the project because the PI is 1.04.;C. accept the project because the PI is 1.11.;D. reject the project because the PI is 0.90.;E. reject the project because the PI is 0.96.;74. It will cost $6,000 to acquire an ice cream cart.;Cart sales are expected to be $3,600 a year for three years. After the three;years, the cart is expected to be worthless as the expected life of the;refrigeration unit is only three years. What is the payback period?;A. 1.48 years;B. 1.67 years;C. 1.82 years;D. 1.95 years;E. 2.00 years;75. You are considering a project with an initial cost;of $7,800. What is the payback period for this project if the cash inflows are;$1,100, $1,640, $3,800, and $4,500 a year over the next four years;respectively?;A. 3.21 years;B. 3.28 years;C. 3.36 years;D. 4.21 years;E. 4.29 years;76. A project has an initial cost of $6,500. The cash;inflows are $900, $2,200, $3,600, and $4,100 over the next four years;respectively. What is the payback period?;A. 1.73 years;B. 2.51 years;C. 2.94 years;D. 3.51 years;E. 3.94 years;77. Alicia is considering adding toys to her gift;shop. She estimates that the cost of inventory will be $7,500. The remodeling;expenses and shelving costs are estimated at $1,500. Toy sales are expected to;produce net cash inflows of $1,800, $2,700, $3,200, and $3,400 over the next;four years, respectively. Should Alicia add toys to her store if she assigns a;three-year payback period to this project? Why or why not?;A. No, The payback period is 2.93 years.;B. No, The payback period is 3.38 years.;C. Yes, The payback period is 2.93 years.;D. Yes, The payback period is 3.01 years.;E. Yes, The payback period is 3.38 years.;78. A project has an initial cost of $18,400 and;produces cash inflows of $7,200, $8,900, and $7,500 over three years;respectively. What is the discounted payback period if the required rate of;return is 16 percent?;A. 2.31 years;B. 2.45 years;C. 2.55 years;D. 2.62 years;E. never;79. Scott is considering a project that will produce;cash inflows of $2,100 a year for 4 years. The project has a 12 percent;required rate of return and an initial cost of $5,000. What is the discounted;payback period?;A. 2.97 years;B. 3.11 years;C. 3.26 years;D. 4.38 years;E. never;80. J&J Enterprises is considering an investment;that will cost $318,000. The investment produces no cash flows for the first;year. In the second year, the cash inflow is $47,000. This inflow will increase;to $198,000 and then $226,000 for the following two years, respectively, before;ceasing permanently. The firm requires a 15.5 percent rate of return and has a;required discounted payback period of three years. Should the project be;accepted? Why or why not?;A. accept, The discounted payback period is 2.18 years.;B. accept, The discounted payback period is 2.32 years.;C. accept, The discounted payback period is 2.98 years.;D. reject, The discounted payback period is 2.18 years.;E. reject, The project never pays back on a discounted basis.;81. The Square Box is considering two projects, both;of which have an initial cost of $35,000 and total cash inflows of $50,000. The;cash inflows of project A are $5,000, $10,000, $15,000, and $20,000 over the;next four years, respectively. The cash inflows for project B are $20,000;$15,000, $10,000, and $5,000 over the next four years, respectively. Which one;of the following statements is correct if The Square Box requires a 12 percent;rate of return and has a required discounted payback period of 3.5 years?;A. Both projects should be accepted.;B. Both projects should be rejected.;C. Project A should be accepted and project B should be rejected.;D. Project A should be rejected and project B should be accepted.;E. You should be indifferent to accepting either or both projects.;82. The Green Fiddle is considering a project that;will produce sales of $87,000 a year for the next 4 years. The profit margin is;estimated at 6 percent. The project will cost $90,000 and will be depreciated;straight-line to a book value of zero over the life of the project. The firm;has a required accounting return of 11 percent. This project should be;because the AAR is _____ percent.;A. rejected, 10.03;B. rejected, 10.25;C. rejected, 11.60;D. accepted, 10.25;E. accepted, 11.60;83. A project has an initial cost of $35,000 and a;3-year life. The company uses straight-line depreciation to a book value of;zero over the life of the project. The projected net income from the project is;$1,200, $2,300, and $1,800 a year for the next 3 years, respectively. What is;the average accounting return?;A. 8.72 percent;B. 10.10 percent;C. 11.26 percent;D. 14.69 percent;E. 15.14 percent;84. A project produces annual net income of $46,200;$51,800, and $62,900 over its 3-year life, respectively. The initial cost of;the project is $675,000. This cost is depreciated straight-line to a zero book;value over three years. What is the average accounting rate of return if the;required discount rate is 14.5 percent?;A. 15.89 percent;B. 16.67 percent;C. 18.98 percent;D. 20.25 percent;E. 23.84 percent;85. A project has average net income of $5,600 a year;over its 6-year life. The initial cost of the project is $98,000 which will be;depreciated using straight-line depreciation to a book value of zero over the;life of the project. The firm wants to earn a minimum average accounting return;of 11.5 percent. The firm should _____ the project because the AAR is;percent.;A. accept, 5.71;B. accept, 9.90;C. accept, 11.43;D. reject, 5.71;E. reject, 11.43;86. Colin is analyzing a project and has gathered the;following data. Based on this data, what is the average accounting rate of;return? The project's assets will be depreciated using straight-line depreciation;to a zero book value over the life of the project.;A. 6.94 percent;B. 13.88 percent;C. 15.66 percent;D. 27.75 percent;E. 31.31 percent;87. You are analyzing the following two mutually;exclusive projects and have developed the following information. What is the;crossover rate?;A. 13.17 percent;B. 13.33 percent;C. 14.32 percent;D. 14.96 percent;E. 15.20 percent;88. Boston Chicken is considering two mutually;exclusive projects with the following cash flows. What is the crossover rate?;If the required rate of return is lower than the crossover rate, which project;should be accepted?;A. 14.72 percent, A;B. 14.72 percent, B;C. 15.99 percent, A;D. 15.99 percent, B;E. 16.08 percent, B;89. You are analyzing a project and have gathered the;following data;Based on the profitability index of _____ for this project, you should;the project.;A. 0.93, accept;B. 1.02, accept;C. 1.07, accept;D. 0.93, reject;E. 1.07, reject;90. You are analyzing a project and have gathered the;following data;Based on the internal rate of return of _____ percent for this project, you;should _____ the project.;A. 14.67, accept;B. 17.91, accept;C. 14.67, reject;D. 17.91, reject;E. 18.46, reject;91. You are analyzing a project and have gathered the;following data;Based on the net present value of _____, you should _____ the project.;A. -$15,030.75, reject;B. -$12,995.84, reject;C. -$9,283.60, accept;D. $9,283.60, accept;E. $12,995.84, accept;92. You are analyzing a project and have gathered the;following data;Based on the payback period of _____ years for this project, you should;the project.;A. 2.79, accept;B. 3.79, accept;C. 2.46, reject;D. 2.79, reject;E. 3.79, reject;93. You are considering the following two mutually;exclusive projects. Both projects will be depreciated using straight-line;depreciation to a zero book value over the life of the project. Neither project;has any salvage value.;Should you accept or reject these projects based on net present value;analysis?;A. accept Project A and reject Project B;B. reject Project A and accept Project B;C. accept both Projects A and B;D. reject both Projects A and B;E. You cannot make this decision based on net present value analysis.;94. You are considering the following two mutually;exclusive projects. Both projects will be depreciated using straight-line;depreciation to a zero book value over the life of the project.;Neither project has any salvage value.;Should you accept or reject these projects based on IRR analysis?;A. accept Project A and reject Project B;B. reject Project A and accept Project B;C. accept both Projects A and B;D. reject both Projects A and B;E. You cannot make this decision based on internal rate of return;analysis.;95. You are considering the following two mutually;exclusive projects. Both projects will be depreciated using straight-line;depreciation to a zero book value over the life of the project. Neither project;has any salvage value.;Should you accept or reject these projects based on payback analysis?;A. accept Project A and reject Project B;B. reject Project A and accept Project B;C. accept both Projects A and B;D. reject both Projects A and B;E. You cannot make this decision based on payback analysis.

 

Paper#51098 | Written in 18-Jul-2015

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