Financial Management Test
Take Home Chapter 8-9
Student: ____________________________________________________________
_______________
1. The difference between an investment 's market value and its cost is called the:
A. present value.
B. net present value.
C. capital value.
D. cash flow.
E. net income. 2. The payback period is the period of time it takes an investment to generate sufficient cash flows to:
A. earn the required rate of return.
B. produce the required net income.
C. produce a yield equal to or greater than the market rate on similar investments.
D. have a cash inflow, rather than an outflow, for the year.
E. recover the investment 's initial cost. 3. The discount rate that causes the net present value of a project to equal zero is called the:
A. yield to maturity.
B. required return.
C. market rate.
D. internal rate of return.
E. average accounting return. 4. The net present value profile is a graphical relationship depicting how a change in the _____ affects the project 's NPV.
A. initial cost
B. discount rate
C. timing of the project 's cash inflows
D. inflation rate
E. real rate of return 5. If by accepting one investment you eliminate the option of another investment, you are dealing with:
A. mutually exclusive investments.
B. negative net present values.
C. conventional cash flows.
D. investments with multiple IRRs.
E. multiple rates of return. 6. Which one of the following indicates a project has a rate of return that exceeds its required return?
A. a positive NPV
B. a payback period that exceeds the required period
C. a PI less than 1.0
D. a positive accounting rate of return
E. an AAR that is less than the required rate 7. The NPV rule states that you should accept an investment if the NPV:
A. is negative.
B. is positive.
C. is less than or equal to zero.
D. is less than the investment 's initial cost.
E. exceeds the investment 's initial cost. 8. Net present value is:
A. negative when a
Student: ____________________________________________________________
_______________
1. The difference between an investment 's market value and its cost is called the:
A. present value.
B. net present value.
C. capital value.
D. cash flow.
E. net income. 2. The payback period is the period of time it takes an investment to generate sufficient cash flows to:
A. earn the required rate of return.
B. produce the required net income.
C. produce a yield equal to or greater than the market rate on similar investments.
D. have a cash inflow, rather than an outflow, for the year.
E. recover the investment 's initial cost. 3. The discount rate that causes the net present value of a project to equal zero is called the:
A. yield to maturity.
B. required return.
C. market rate.
D. internal rate of return.
E. average accounting return. 4. The net present value profile is a graphical relationship depicting how a change in the _____ affects the project 's NPV.
A. initial cost
B. discount rate
C. timing of the project 's cash inflows
D. inflation rate
E. real rate of return 5. If by accepting one investment you eliminate the option of another investment, you are dealing with:
A. mutually exclusive investments.
B. negative net present values.
C. conventional cash flows.
D. investments with multiple IRRs.
E. multiple rates of return. 6. Which one of the following indicates a project has a rate of return that exceeds its required return?
A. a positive NPV
B. a payback period that exceeds the required period
C. a PI less than 1.0
D. a positive accounting rate of return
E. an AAR that is less than the required rate 7. The NPV rule states that you should accept an investment if the NPV:
A. is negative.
B. is positive.
C. is less than or equal to zero.
D. is less than the investment 's initial cost.
E. exceeds the investment 's initial cost. 8. Net present value is:
A. negative when a