Question: Net present value (NPV) is the difference between an investment's market value and its cost. True or False The average accounting return (AAR) is determined
- Net present value (NPV) is the difference between an investment's market value and its cost.
True or False
- The average accounting return (AAR) is determined by dividing an investment's average net income by its average book value of the investment.
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True or False
- NPV and IRR rankings do not conflict with certain discount rates.
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True or False
- What are non-conventional cash flows?
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Multiple Choice
- A combination of cash outflows and inflows.
- Low cash flows followed by much higher cash flows.
- High cash flows followed by much lower cash flows.
- Small initial investments and much larger returns.
- A zero return on an investment.
- What does mutually exclusive mean?
Multiple Choice
- Independent projects are also mutually exclusive.
- We must choose all the high NPV projects that are exclusive for our company.
- Each project must be mutually beneficial for other projects in the company.
- The highest IRR is always the best option, which is mutually exclusive.
- Taking one project means that we cannot take the other.Bottom of Form
- Based upon the following data: calculate the Profitability Index. Cost = $325 Present value of future cash flows = $350
- Blinding Light Company has a project available with the following cash flows:
- POD has a project with the following cash flows:
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Multiple Choice
- .93
- .97
- 1.00
- 1.05
- 1.08
| Year | Cash Flow |
|---|---|
| 0 | $ 34,110 |
| 1 | 8,150 |
| 2 | 9,810 |
| 3 | 13,980 |
| 4 | 15,850 |
| 5 | 10,700 |
8. What is the project's IRR?
Multiple Choice
20.23%
17.48%
21.58%
19.42%
21.04%
| Year | Cash Flows |
|---|---|
| 0 | $ 285,000 |
| 1 | 145,300 |
| 2 | 162,800 |
| 3 | 127,900 |
10. The required return is 8.1 percent. What is the profitability index for this project?
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Multiple Choice
.760
1.096
1.206
1.316
.950
- Living Colour Company has a project available with the following cash flows:
| Year | Cash Flow |
|---|---|
| 0 | $ 35,710 |
| 1 | 7,850 |
| 2 | 9,410 |
| 3 | 13,280 |
| 4 | 15,450 |
| 5 | 10,100 |
12. If the required return for the project is 7.5 percent, what is the project's NPV?
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Multiple Choice
$9,781.62
$1,993.95
$20,380.00
$10,319.08
$9,029.19
13.A company has a project available with the following cash flows:
| Year | Cash Flow |
|---|---|
| 0 | $ 31,430 |
| 1 | 13,140 |
| 2 | 14,740 |
| 3 | 20,990 |
| 4 | 12,140 |
14.If the required return for the project is 9.8 percent, what is the project's NPV?
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Multiple Choice
$8,619.88
$16,972.24
$29,580.00
$15,557.89
$19,396.85
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15.The stand-alone principle considers the evaluation of a project based on the project's incremental cash flows.
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True or False
16.Opportunity cost is defined as a cost that has already been incurred and cannot be removed and therefore should not be considered in an investment decision.
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True or False
17.The bottom up approach to calculating operating cash flow can be formulated as:
Sales + Costs + Taxes
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True or False
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18.Incremental cash flow analysis considers the difference between a firm's future cash flows with and without a project.
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True or False
19. The balance sheet for the Capella Corporation is as follows:
| Assets | Liabilities and Shareholders' Equity | ||||||
| Current assets | $ | 300 | Current liabilities | $ | 110 | ||
| Net fixed assets | 1,200 | Long-term debt | 500 | ||||
| Shareholders' equity | 890 | ||||||
| Total assets | $ | 1,500 | Total liabilities and shareholders' equity | $ | 1,500 | ||
20. What is the Net Working Capital for Capella Corporation?
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Multiple Choice
$110
- $190
$300
$410
$890
21. A project is expected to generate annual revenues of $123,300, with variable costs of $76,900, and fixed costs of $17,400. The annual depreciation is $4,200 and the tax rate is 21 percent. What is the annual operating cash flow?
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Multiple Choice
$48,080
$65,480
$29,000
$33,200
$23,792
22. Bi-Lo Traders is considering a project that will produce sales of $35,600 and have costs of $20,900. Taxes will be $3,700 and the depreciation expense will be $2,050. An initial cash outlay of $1,700 is required for net working capital. What is the project's operating cash flow?
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Multiple Choice
$8,950
$7,250
$11,000
$9,300
$13,050
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23. Jasper Metals is considering installing a new molding machine which is expected to produce operating cash flows of $70,000 per year for 8 years. At the beginning of the project, inventory will decrease by $28,800, accounts receivables will increase by $27,400, and accounts payable will increase by $19,800. At the end of the project, net working capital will return to thelevel it was prior to undertaking the new project. The initial cost of the molding machine is $297,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating an aftertax cash flow of $80,000. What is the net present value of this project given a required return of 11.6 percent?
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Multiple Choice
$117,299
$106,148
$96,883
$101,287
$112,858
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24. You purchased 540 shares of stock at a price of $43.92 per share. Over the last year, you have received total dividend income of $630. What is the dividend yield?
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Multiple Choice
1.2%
2.7%
14.3%
16.7%
77.5%
25. Six months ago, you purchased 2,700 shares of ABC stock for $44.81 a share. You have received dividend payments equal to $.50 a share. Today, you sold all of your shares for $47.49 a share. What is your total dollar return on this investment?
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Multiple Choice
$7,236
$14,472
$8,586
$1,350
$17,172
27. You purchased a stock at a price of $38.52. The stock paid a dividend of $1.35 per share and the stock price at the end of the year is $43.87. What isthe capital gains yield?
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Multiple Choice
3.50%
17.39%
11.59%
12.20%
13.89%
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28. You purchased a stock at a price of $42.17. The stock paid a dividend of $1.55 per share and the stock price at the end of the year is $47.77. What was the dividend yield?
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Multiple Choice
16.96%
4.41%
4.04%
3.68%
13.28%
29. You purchased a stock at a price of $46.06. The stock paid a dividend of $1.47 per share and the stock price at the end of the year was $50.56. What was the total return for the year?
Multiple Choice
12.96%
12.38%
11.81%
9.77%
3.19%Bottom of Form
30. An asset has an average return of 10.31 percent and a standard deviation of 19.17 percent. What range of returns should you expect to see with a 68 percent probability?
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Multiple Choice
18.45% to 39.07%
28.03% to 48.65%
8.86% to 29.48%
47.20% to 67.82%
8.86% to 11.76%
31. A stock had returns of 16.27 percent, 6.23 percent, and 23.48 percent for the past three years. What is the standard deviation of the returns?
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Multiple Choice
15.50%
24.02%
12.22%
8.95%
2.40%
32. Stock and dividend returns can be shown in percentage, dollar, and per-share values.
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True or False
33. The variance and its square root, the standard deviation, are the most commonly used measures of volatility.
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True or False
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34. The geometric average return determines the return earned in an average year over a multi-year period, while the arithmetic average return determines the average compound return earned per year over a multi-year period.
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True or False
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