1. Whenever there is a conflict between NPV and anotherdecision rule, you should always use NPV.
A. True
B. False
2. ________ finds one or more companies that specializein the product or service that we are considering.
A. The Objective Approach
B. The Pure Play Approach
C. The Subjective Approach
D. None of the above
3. The required return of bond is best estimated bycomputing the ________ on the bond.
A. Yield-to-maturity
B. market value
C. Risk
D. Both A and B
4. The return earned on assets depends on the ________of those assets.
A. Book value
B. Net book value
C. Risk
D. Liquidity
5. Which of the following is/are correct?
A. If the salvage value is the same as the book value of theasset, then there is a tax effect.
B. Book value = initial cost - accumulated depreciation
C. After-tax salvage = salvage - Tax Rate x (salvage - bookvalue)
D. Both B and C
6. ________ is the most important alternative to NetPresent Value.
A. IRR
B. Payback Method
C. Average Accounting Return
D. Discounted Payback
7. The mean difference between Payback and DiscountedPayback is:
A. Discounted Payback accounts for the time value of money andPayback does not
B. Discounted Payback accounts for the risk of the cash flowsand Payback does not
C. Only Payback does not provide an indication about theincrease in value
D. Both A and B
8. The ________ measures the time to get the initialcost back.
A. Internal Rate of Return
B. Net Present Value
C. Payback period
D. Profitability Index
9. Which of the following element/s should be consideredwhen evaluating capital budgeting decision rules?
A. Time value of money
B. Adjustment for risk
C. Creating value for the firm
D. All of the above
1. Whenever there is a conflict between NPV and anotherdecision rule, you should always use NPV.
A. True
B. False
2. ________ finds one or more companies that specializein the product or service that we are considering.
A. The Objective Approach
B. The Pure Play Approach
C. The Subjective Approach
D. None of the above
3. The required return of bond is best estimated bycomputing the ________ on the bond.
A. Yield-to-maturity
B. market value
C. Risk
D. Both A and B
4. The return earned on assets depends on the ________of those assets.
A. Book value
B. Net book value
C. Risk
D. Liquidity
5. Which of the following is/are correct?
A. If the salvage value is the same as the book value of theasset, then there is a tax effect.
B. Book value = initial cost - accumulated depreciation
C. After-tax salvage = salvage - Tax Rate x (salvage - bookvalue)
D. Both B and C
6. ________ is the most important alternative to NetPresent Value.
A. IRR
B. Payback Method
C. Average Accounting Return
D. Discounted Payback
7. The mean difference between Payback and DiscountedPayback is:
A. Discounted Payback accounts for the time value of money andPayback does not
B. Discounted Payback accounts for the risk of the cash flowsand Payback does not
C. Only Payback does not provide an indication about theincrease in value
D. Both A and B
8. The ________ measures the time to get the initialcost back.
A. Internal Rate of Return
B. Net Present Value
C. Payback period
D. Profitability Index
9. Which of the following element/s should be consideredwhen evaluating capital budgeting decision rules?
A. Time value of money
B. Adjustment for risk
C. Creating value for the firm
D. All of the above
Related questions
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
| Year | Project(A) | Project (B) |
| 0 | -$30,000 | -$25,000 |
| 1 | 10,000 | 8,000 |
| 2 | 11,000 | 8,000 |
| 3 | 12,000 | 8,000 |
| 4 | 13,000 | 8,000 |
The required rate of return is 10%.
(a) What is the NPV for each of the projects? Which project should be accepted if NPV method is applied? Explain why.
(b) What is the IRR for each of the projects? Which project should be accepted if IRR method is applied? Explain why.
(c) What is the payback period for each of the projects? Which project should be accepted if payback period method is applied? Explain why.
(d) What is the discounted payback period for each of the projects? Which project should be accepted if discounted payback period method is applied? Explain why.
(e) What is the profitability index for each of the projects? Which project should be accepted if profitability index method is applied? Explain why.
(f) Find the crossover rate. Show the equation.
(g) Sketch the NPV profile. You must plot at least 5 points for the profile: two points on the x and y axis each, and the cross-over rate on the x axis.
