Question 1

For mutually exclusive projects whose NPV Profiles (graphs) intersect, IRR is a more reliable criteria for project selection than NPV.

True

False

1 points

Question 2

Other things the same, if the market interest rates increase, the NPV of a project:

	a.	increases.
	b.	cannot be determined with out knowing the discount rate.
	c.	is unaffected.
	d.	decreases.

1 points

Question 3

If a projects Cash Flow (non-normal) pattern has two changes of signs, its NPV Profile (graph) will cross the horizontal line:

a.

Twice

b.

Thrice

c.

Once

1 points

Question 4

When the IRR is equal to the discount rate, the NPV is:

	a.	positive.
	b.	cannot be determined without knowing the discount rate.
	c.	equal to zero.
	d.	negative.

1 points

Question 5

Consider projects A and B A has a modest scale or required initial investment while B has a very large scale. In this case, which of the following criteria is relatively the most reliable one for project selection?

	a.	PI (Profitability Index)
	b.	IRR
	c.	NPV

1 points

Question 6

Other things the same, if the market interest rates increases, the IRR of a project:

	a.	increases.
	b.	decreases.
	c.	is unaffected.
	d.	cannot be determined with out knowing the discount rate.

1 points

Question 7

You must know all the cash flows of an investment project to compute its

	a.	NPV, PI, IRR
	b.	NPV, IRR, PI, payback period, and discount payback period,
	c.	NPV, accounting rate of return, IRR, PI
	d.	NPV, IRR, PI, and discount payback period

1 points

Question 8

A firm has 10 million shares outstanding with a current market price of $20 per share. There is one investment project available to the firm. The initial investment of the project is $20 million, and the NPV of the project is $10 million. What will be the firms stock price if capital markets fully reflect the value of undertaking the project?

	a.	$19
	b.	$20
	c.	$21
	d.	$22

1 points

Question 9

Potential problems in using the IRR as a capital budgeting technique include:

	a.	all of the above
	b.	the timing problem
	c.	multiple IRRs
	d.	the scale problem

1 points

Question 10

What is the Profitability Index of the Commerce Companys following project that has the following cash flows if the discount rate is 7%?

Year	Cash Flow
0	-$10,000
1	$ 2,000
2	$ 3,000
3	$ 4,000
4	$ 5,000
5	$ 6,000

	a.	1.58
	b.	3.58
	c.	0.58
	d.	2.58