FIN 3113 CHAPTER 9 EXAM
QUESTIONS WITH 100% CORRECT
ANSWERS
How does the timing and the size of cash flows affect the payback method? - Answer-
An increase in the size of the first cash inflow will decrease the payback method, all else
held constant
IRR is the discount rate that makes the NPV of a project equal to _______. - Answer-
zero
Most important alternative to NPV is the ____ method. - Answer- IRR
Point at which the NPV profile crosses the horizontal axis is the: - Answer- IRR
IRR continues to be very popular in practice, partly because: - Answer- gives a rate of
return rather than a dollar value
Amount of time needed for the cash flows from an investment to pay for its initial cost is
the: - Answer- payback period
Profitability index is calculated by dividing the PV of the ______ CF by initial investment.
- Answer- Future
Two challenges with the IRR approach when comparing 2 mutually exclusive projects
are scale and cash flow timing. - Answer- True
The payback period rule ____ a project if it has a payback period that is less than or
equal to a particular cutoff date. - Answer- Suggests accepting
In capital budgeting, the net ______ determines the value of a project to the company. -
Answer- Present Value
If NPV is positive, the project should be ______. - Answer- Accepted
If NPV is negative, the project should be _______. - Answer- Rejected
QUESTIONS WITH 100% CORRECT
ANSWERS
How does the timing and the size of cash flows affect the payback method? - Answer-
An increase in the size of the first cash inflow will decrease the payback method, all else
held constant
IRR is the discount rate that makes the NPV of a project equal to _______. - Answer-
zero
Most important alternative to NPV is the ____ method. - Answer- IRR
Point at which the NPV profile crosses the horizontal axis is the: - Answer- IRR
IRR continues to be very popular in practice, partly because: - Answer- gives a rate of
return rather than a dollar value
Amount of time needed for the cash flows from an investment to pay for its initial cost is
the: - Answer- payback period
Profitability index is calculated by dividing the PV of the ______ CF by initial investment.
- Answer- Future
Two challenges with the IRR approach when comparing 2 mutually exclusive projects
are scale and cash flow timing. - Answer- True
The payback period rule ____ a project if it has a payback period that is less than or
equal to a particular cutoff date. - Answer- Suggests accepting
In capital budgeting, the net ______ determines the value of a project to the company. -
Answer- Present Value
If NPV is positive, the project should be ______. - Answer- Accepted
If NPV is negative, the project should be _______. - Answer- Rejected
