Q1.

The rule for project acceptance under the net-present-value method is that:

Multiple Choice

• NPV should be greater than zero.

• NPV should be less than zero.

• NPV should equal zero.

• NPV should be less than the hurdle rate.

• NPV should equal the hurdle rate.

Q2.

A company's hurdle rate is generally influenced by:

Multiple Choice

• the cost of capital.

• the firm's depreciable assets.

• whether management uses the net-present-value method or the internal-rate-of-return method.

• project risk.

• both the cost of capital and project risk.

q3.

If a proposal's profitability index is greater than one:

Multiple Choice

• the net present value is negative.

• the net present value is positive.

• the net present value is zero.

• none of these, because the net present value cannot be gauged by the profitability index.

• the proposal should be rejected.

q4.

Upton evaluates future projects by using the profitability index. The company is currently reviewing five similar projects and must choose one of the following:

Project	Initial Investment				Present Value of Cash Inflows
1	$	100,000			$	97,000
2		50,000				80,000
3		75,000				110,000
4		60,000				100,000
5		150,000				200,000

Which project should Upton select if the decision is based entirely on the profitability index?

Multiple Choice

• Project 1.

• Project 2.

• Project 3.

• Project 4.

• Project 5.