1. Net present value (NPV) is the difference between an investment's market value and its cost.

True or False

1. The average accounting return (AAR) is determined by dividing an investment's average net income by its average book value of the investment.

Top of Form

True or False

1. NPV and IRR rankings do not conflict with certain discount rates.

Top of Form

True or False

1. What are non-conventional cash flows?

Top of Form

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.

1. 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

1. Based upon the following data: calculate the Profitability Index. Cost = $325 Present value of future cash flows = $350
2. Blinding Light Company has a project available with the following cash flows:
   1. POD has a project with the following cash flows:

Top of Form

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?

Top of Form

Multiple Choice

.760

1.096

1.206

1.316

.950

1. 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?

Top of Form

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?

Top of Form

Multiple Choice

$8,619.88

$16,972.24

$29,580.00

$15,557.89

$19,396.85

Bottom of Form

15.The stand-alone principle considers the evaluation of a project based on the project's incremental cash flows.

Top of Form

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.

Top of Form

True or False

17.The bottom up approach to calculating operating cash flow can be formulated as:

Sales + Costs + Taxes

Top of Form

True or False

Bottom of Form

18.Incremental cash flow analysis considers the difference between a firm's future cash flows with and without a project.

Top of Form

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?

Top of Form

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?

Top of Form

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?

Top of Form

Multiple Choice

$8,950

$7,250

$11,000

$9,300

$13,050

Bottom of Form

Bottom of Form

Bottom of Form

Top of Form

Bottom of Form

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?

Top of Form

Multiple Choice

$117,299

$106,148

$96,883

$101,287

$112,858

Bottom of Form

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?

Top of Form

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?

Top of Form

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?

Top of Form

Multiple Choice

3.50%

17.39%

11.59%

12.20%

13.89%

Bottom of Form

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?

Top of Form

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?

Top of Form

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?

Top of Form

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.

Top of Form

True or False

33. The variance and its square root, the standard deviation, are the most commonly used measures of volatility.

Top of Form

True or False

Bottom of Form

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.

Top of Form

True or False

Bottom of Form

Answer rating: 100% (QA)

SOLUTION 1 True or False The average accounting return AAR is determined by dividing an investments average net income by its average book value of the investment False The average accounting return A... View the full answer