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Question;96. 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 the profitability;index?;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 the profitability index.;97. 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 the average accounting;return?;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 the information provided.;98. Motor City Productions sells original automotive;art on a prepaid basis as each piece is uniquely designed to the customer's;specifications. For one project, the cash flows are estimated as follows. Based;on the internal rate of return (IRR), should this project be accepted if the;required return is 9 percent?;A. Accept the project.;B. Reject the project.;C. The IRR cannot be used to evaluate this type of project.;D. The firm should be indifferent to either accepting or rejecting this;project.;E. Insufficient information is provided to make a decision based on IRR.;99. Rosa's Designer Gowns creates exquisite gowns for;special occasions on a prepaid basis only. The required return is 8 percent.;Rosa has estimated the cash flows for one gown as follows. Should Rosa sell;this gown at the price she is currently considering based on the estimated;internal rate of return (IRR)?;A. Rosa should sell the gown for $155,000.;B. Rose can sell the gown for as little as $153,819 and still earn her;required return.;C. The gown must be sold for a minimum price of $175,926 if Rosa is to;earn her required return.;D. The IRR decision rule cannot be applied to this project.;E. Insufficient information is provided to make a decision based on IRR.;Essay Questions;100. The profitability index (PI) of a project is 1.0.;What do you know about the project's net present value (NPV) and its internal;rate of return (IRR)?;101. Explain how the internal rate of return (IRR);decision rule is applied to projects with financing type cash flows.;102. Explain the differences and similarities between;net present value (NPV) and the profitability index.;103. How does the net present value (NPV) decision;rule relate to the primary goal of financial management, which is creating;wealth for shareholders?;Multiple Choice Questions;104. An investment project provides cash flows of;$1,190 per year for 10 years. If the initial cost is $8,000, what is the;payback period?;A. 3.36 years;B. 5.28 years;C. 6.72 years;D. 8.13 years;E. never;105. An investment project costs $21,500 and has;annual cash flows of $4,200 for 6 years. If the discount rate is 20 percent;what is the discounted payback period?;A. 4.41 years;B. 4.67 years;C. 5.12 years;D. 5.40 years;E. never;106. You're trying to determine whether to expand your;business by building a new manufacturing plant. The plant has an installation;cost of $12 million, which will be depreciated straight-line to zero over its;4-year life. The plant has projected net income of $1,095,000, $902,000;$1,412,000, and $1,724,000 over these 4 years. What is the average accounting;return?;A. 10.70 percent;B. 15.63 percent;C. 18.87 percent;D. 21.39 percent;E. 23.05 percent;107. A firm evaluates all of its projects by applying;the IRR rule. The required return for the following project is 21 percent. The;IRR is _____ percent and the firm should ______ the project.;A. 23.67 percent, reject;B. 24.26 percent, accept;C. 24.26 percent, reject;D. 26.30 percent, accept;E. 26.30 percent, reject;108. A firm evaluates all of its projects by using the;NPV decision rule. At a required return of 14 percent, the NPV for the;following project is _____ and the firm should _____ the project.;A. $5,684.22, reject;B. $7,264.95, accept;C. $7,264.95, reject;D. $9,616.93, accept;E. $9,616.93, reject;109. A project that provides annual cash flows of;$12,600 for 12 years costs $67,150 today. At what rate would you be indifferent;between accepting the project and rejecting it?;A. 15.28 percent;B. 15.40 percent;C. 15.51 percent;D. 15.62 percent;E. 15.74 percent;110. Hungry Hoagie's has identified the following two;mutually exclusive projects;At what rate would you be indifferent between these two projects?;A. 17.34 percent;B. 17.72 percent;C. 19.41 percent;D. 19.69 percent;E. 20.28 percent;111. Consider the following two mutually exclusive;projects;What is the crossover rate for these two projects?;A. 6.29 percent;B. 6.48 percent;C. 6.71 percent;D. 6.75 percent;E. 6.94 percent;112. The relevant discount rate for the following set;of cash flows is 14 percent. What is the profitability index?;A. 0.89;B. 0.93;C. 0.99;D. 1.03;E. 1.07;113. Consider the following two mutually exclusive;projects;The required return is 15 percent for both projects. Which one of the following;statements related to these projects is correct?;A. Because both the IRR and the PI imply accepting Project B, that project;should be accepted.;B. The profitability rule implies accepting Project A.;C. The IRR decision rule should be used as the basis for selecting the;project in this situation.;D. Only NPV implies accepting Project A.;E. NPV, IRR, and PI all imply accepting Project A.;114. An investment project has an installed cost of;$518,297. The cash flows over the 4-year life of the investment are projected;to be $287,636, $203,496, $103,802, and $92,556, respectively. What is the NPV;of this project if the discount rate is zero percent?;A. $47,306;B. $72,418;C. $91,110;D. $128,415;E. $169,193;115. The Taxi Co. is evaluating a project with the;following cash flows;The company uses a 10 percent interest rate on all of its projects. What is the;MIRR using the discounted approach?;A. 13.25 percent;B. 14.08 percent;C. 16.40 percent;D. 17.17 percent;E. 19.23 percent;116. The Chandler Group wants to set up a private;cemetery business. According to the CFO, Barry M. Deep, business is;looking up". As a result, the cemetery project will provide a net;cash inflow of $57,000 for the firm during the first year, and the cash flows;are projected to grow at a rate of 7 percent per year forever. The project;requires an initial investment of $759,000. The firm requires a 14 percent;return on such undertakings. The company is somewhat unsure about the;assumption of a 7 percent growth rate in its cash flows. At what constant rate;of growth would the company just break even?;A. 4.48 percent;B. 5.29 percent;C. 5.61 percent;D. 6.49 percent;E. 6.75 percent;21. Gerold invested $6,200 in an account that pays 5;percent simple interest. How much money will he have at the end of ten;years?;A. $8,710;B. $9,000;C. $9,300;D. $9,678;E. $10,099;22. Alex invested $10,500 in an account that pays 6;percent simple interest. How much money will he have at the end of four;years?;A. $12,650;B. $12,967;C. $13,020;D. $13,256;E. $13,500;23. You invested $1,650 in an account that pays 5;percent simple interest. How much more could you have earned over a 20-year;period if the interest had compounded annually?;A. $849.22;B. $930.11;C. $982.19;D. $1,021.15;E. $1,077.94;Simple interest = $1,650 + ($1,650?.05? 20) = $3,300;Annual compounding = $1,650? (1.05)20 = $4,377.94;Difference = $4,377.94 - $3,300 = $1,077.94

Paper#51099 | Written in 18-Jul-2015

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