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##### ECONOMICS PRACTICE QUIZ

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Question;Practice Quiz 11. The Payback period is best defined as:A) the time it takes to receive cash flows sufficient to cover your initial investment B) the time period required for total revenue received to equal the initial investmentC) the time Investment period required for the present value of all cash flows to equal the initialD) the time period required for the NPV to equal zero;2.Calculate the payback period for the following investment: A machine costs $100,000 with installation costs of $15,000. Cash inflows are expected to be 26,000 per yearfor the next seven years.A) greater than 6 yearsB)3.85 yearsC) 5 yearsD) 4.42 years;3. A problem associated with the payback method is: A) it usually requires less time to compute than that required by the net present value methodB) it doesn't consider cash flows after the payback periodC) it assumes that all cash flows are invested at the cost of capitalD) it uses the time value of money concept;4. The value of a business depends on future cash flows.This value is affected by;A) the size of the cash flowsB) the timing of the cash flowsC) the riskiness of the cash flowsD) all of the above;5. NPV represents:A) the percentage return of the projectB) the percentage change represented by the projectC)the dollar change in firm value resulting from undertaking a projectD)the dollar profits added to the firm discounting at the cost of capital;6. An acceptable net present value has a value:A)= or > 0B)<0C)= or <0D) equal to the IRR;7. Given the following information, calculate the net present value:a. NPV=Initial Cash Outlay +PV of Cash Flow 1+ PV of Cash Flow 2+...PV of Cash Flow N.b. Initial outlay is $50,000, required rate of return is 10%, cash inflows at the end of the next 4 years are $60,000, $30,000,$40,000, And $50,000.A)$87,734B)$93,542C)equal to 0D) Less than 0;8. The internal rate of return (IRR) is best described as the discount rate that:A) makes the Net Present Value (NPV) equal to the Internal Rate of Return(IRR)B) makes the NPV of a projector acquisition, i.e., its incremental cash flows minus its Costs or acquisition price, equal to zeroC) equals the required rate of returnD) equates all cashflows to the current market rate;9. The Hurdle rate is:A) the number of years required to get the Initial investment In the payback periodB) the IRRC) the NPVD) the rate of return the firm decides it must earn from new projects or investments;10. A project is accepted If its IRR is:A) Less than or equal to the hurdle rateB) Greater than the NPVC) Equal to the NPVD) equal to or greater than the hurdle rate;11. The Project selection method most consistent with the goal of firm value maximization is:A) Payback methodB) IRRC) NPVD) Both IRR And NPV;12. When Two (or more) projects are mutually exclusive (if you done, it rules out the possibility of doing the other), management should choose:A) the project with highest IRR (internal rate of return)B) the one with highest NPV (Net Present Value)C) the one with highest cost of capitalD) with mutually exclusive projects, NPV = IRR so the highest of either is appropriate;13. When evaluating a project with higher Than average risk, a financial analyst should:A) always rejects the projectB) uses a risk--?free rate of interest as the required rate of returnC) adjusts the discount rate upward in the NPV calculationD) Adjusts the discount rate upward in the IRR calculation;14. Given the following information, calculate the NPV: Purchase price is $150,000, setup is $15,000, cash flows are $15,000, $20,000, ($10,000), $30,000, $50,000, required rate of return is 9%.A) $10,000B) ($72,934)C) ($76,442)D) ($88,377);15. A cost that Has been incurred, or will occur, whether a project is accepted or rejected is aA) salvage valueB) Incremental cash flowC) Sunk costD) externality;16. Which of the following is (are) an example(s) of a sunk cost?A) An Environment impact study to determine if plant emissions will affect the environment.B) A Marketing demand study to see if demand exists for the proposed product.C) A soil sample to determine if the land will support the proposed production facility.D) All of the above are examples of sunk costs.;17. Which Of the following items would not represent an incremental cash flow?A) shut--?down cash flowB) Existing overhead expenseC) change In operating cash flowD) Initial investment cash flow;18. What Is the relevant cash flow in Year 3 For deciding whether to purchase a replacement machine, based on these projected cash flows generated by the new one and the old one?YearNewOld0001100,000$75,0002123,67270,0003125,00065,000A)$25,000B)$60,000C)$125,000D) $55,000;19. W hen you start with expected incremental Net Income to estimate incremental after-?tax net cash flows from a new project, additional depreciation arising fromthe project will:A) cause incremental operating cash flows to decreaseB) have no effect on incremental cash flowsC) cause incremental cash flows to increaseD) only affect the fixed asset account as depreciation is a sunk cost;20 W hich of the following is correct?A) NPV and IRR are both subject to cash flow estimation error.B) Payback uses all relevant cash flows in its analysis.C) IRR is preferred over NPV when the two methods conflict.D) All of the above are correct.;21. Calculate the incremental operating cash flow for year two for a new proposed project given the following information;Machine cost: $90,000Installation & Delivery: $10,000Depreciation Expense, Year 2: $44,500Tax Rate: 40%New Revenues: $145,000/yr, Old Revenues:$ 90,000/yrA) $104,800B) $ 60,300C) $ 50,800D)$ 6,300

Paper#57605 | Written in 18-Jul-2015

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