Multiple Choice Questions 1. Each of the following statements describes the relationship between IRR and NPV. Identify

Question:

Multiple Choice Questions

1. Each of the following statements describes the relationship between IRR and NPV. Identify the correctly worded statement.

a. The IRR is the discount rate that results in a zero NPV.

b. The IRR is the discount rate that results in a positive NPV.

c. The IRR is equal to the company€™s cost of capital used in NPV calculations.

d. None of the above statements is correctly worded.

2. Screening decisions involve:

a. Choosing between alternatives

b. Identifying objectives

c. Defining a problem

d. Deciding whether an investment meets a predetermined criterion

3. You are considering the following two projects:

Project A Project B Initial investment $(2,000) S(4,000) PV of cash inflows 2,600 3,400 Net present value $ 600 $ (600)

Calculate a profitability index for each project and determine which is/are acceptable?

a. A only

b. B only

c. A and B

d. neither A nor B

4. Preference decisions involve:

a. Choosing between alternatives

b. Identifying objectives

c. Defining a problem

d. Deciding whether an investment meets a predetermined criterion

5. A company purchased a piece of manufacturing equipment for which it will record annual depreciation of $45,000. What is the tax savings related to this equipment if the company€™s tax rate is 35 percent?

a. $29,250

b. $45,000

c. $15,750

d. None of the above.

6. If Warner Enterprises is in the 40 percent tax bracket and has a 10 percent rate of return, its after-tax benefit should be calculated by using a rate of return of:

a. 6 percent

b. 10 percent

c. 40 percent

d. 60 percent

7. Your company has a policy of accepting projects with a payback period of seven years or less. Which of the following projects would be acceptable?

Multiple Choice Questions 1. Each of the following statements describes

a. A only

b. B only

c. A and B

d. neither A nor B

8. Which of the following capital investment evaluation techniques does not require the use of discounted cash flows?

a. IRR

b. NPV

c. payback period

d. Each of the above requires discounted cashflows.

Discounted Cash Flows
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