# Net Present Value and Correct Answer

**Topics:**Net present value, Investment, Capital budgeting

**Pages:**7 (836 words)

**Published:**June 7, 2011

Which of the following NOT correct?

Independent or non-mutually exclusive alternatives can be accepted at the same time.

The modified internal rate of return assumes that inflow are reinvested at 80 percent of the internal rate of return This is a correct answer

It is the difference in the reinvestment assumptions that can be significant in determining when to use the present value or internal rate of return methods.

Under the net present value method, cash flows are assumed to be reinvested at the firm's weighted average cost of capital

Points earned on this question: 1

Question 2 (Worth 1 points)

A project has initial costs of $3,000 and subsequent cash inflows in years 1 – 4 of $1350, 275, 875, and 1525. The company's cost of capital is 10%. Calculate IRR for this project.

10.00%

11.75%

12.25%

This is a correct answer

13.15%

Points earned on this question: 0

Question 3 (Worth 1 points)

The Internal Rate of Return of a capital investment…

Changes when the cost of capital changes

Is equal to the annual net cash flows divided by one half of the project’s cost when the cash flows are an annuity

Must exceed the cost of capital in order for the firm to accept the investment This is a correct answer

None of the above options are correct

Points earned on this question: 0

Question 4 (Worth 1 points)

A project has initial costs of $3,000 and subsequent cash inflows in years 1 – 4 of $1350, 275, 875, and 1525. The company's cost of capital is 10%. Calculate NPV for this project.

$154

This is a correct answer

$174

$275

$325

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Question 5 (Worth 1 points)

An appropriate capital budgeting process requires that the following steps are taken in which order? a)collection of data

b)reevaluation and adjustment

c)evaluation and decision making

d)search for and discovery of investment opportunities

d, a, c, b

This is a correct answer

d, a, b, c

d, b, a, c

b, d, a, c

Points earned on this question: 1

Question 6 (Worth 1 points)

An operating lease...

has a lease term equal to 75% or more of the estimated property.

is usually short-term and is often cancelable at the option of the lessee This is a correct answer

must show up on the balance sheet.

none of the above

Points earned on this question: 1

Question 7 (Worth 1 points)

A project has initial costs of $3,000 and subsequent cash inflows in years 1 – 4 of $1350, 275, 875, and 1525. The company's cost of capital is 10%. Calculate the payback period for this project.

3.33 years

This is a correct answer

3.67 years

4.00 years

4.25 years

Points earned on this question: 1

Question 8 (Worth 1 points)

Leasing is a popular form of financing because...

lease provisions are generally less restrictive than a bond indenture

the lessor likely has experience with the equipment being leased.

the lessee may not be financially able to purchase.

all of the above

This is a correct answer

Points earned on this question: 1

Question 9 (Worth 1 points)

One advantage of the payback period method of evaluating investment opportunities is that it provides a rough measure of a project's liquidity and riskiness.

True

This is a correct answer

False

Points earned on this question: 1

Question 10 (Worth 1 points)

Heavy use of off-balance sheet lease financing will tend to...

Make a company appear more risky than it actually is

Make a company appear less risky than it actually is

This is a correct answer

Affect a company's cash flows but not its degree of risk

Have no effect on either cash flows or risk because the cash flows are already reflected in the income statement

Points earned on this question: 0

Question 11 (Worth 1 points)

A project has initial costs of $3,000 and subsequent cash inflows in...

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