$1.$ Which investment analysis tool calculates a rate of return based on a net present value of zero?

Internal Rate of Return

Payback Period

Inflation Adjusted Return

Rate of Return

$2.$ Why is net present value an important investment analysis tool?

Because money loses value over time and net present value adjusts future earnings into today's dollars.

Because anything that doesn't have a net present value of at least twice what it costs is a waste of money.

Because most banks or investors set guidelines on the minimum net present value required for the companies they support.

Because we need to know exactly how much money we'll make in the future to decide if an investment is worth the risk.

$3.$ In investment analysis, what is the minimum payback period that should be accepted for an investment to be considered a good investment?

$5$ years

At least half of the investment's useful life.

$2$ years

We can't say; it is just a point of comparison to use between two investment options.

$4.$ In investment analysis, which of the following is TRUE regarding NPV$,$ IRR, and payback period?

The lower the IRR, the higher the NPV$,$ and the longer the payback period.

These three investment analysis tools are three of the most common and useful, but there are many more that can, and should, be considered.

Companies will first use NPV to justify a project; if that doesn't work, they'll calculate IRR. If that still doesn't work, they'll rely on payback period to justify an investment cost.

If NPV and IRR are positive, and payback is less than one year, you have a good investment.

$5.$ In the formula to calculate net present value, what information do you need to have?

The number of years until you receive the income and the amount of that income

The internal rate of return and the number of years until you receive the income

The amount of the future income, the amount of the investment, and the internal rate of return

The amount of the future income, the discount or inflation rate, and the number of years the stream of payments lasts.