FIN 320 CH 8 Quiz Exam with
Correct Answers
Which of the following statements is FALSE?
A. If the cost of capital estimate is more than the internal rate of return (IRR), the net present value
(NPV) will be positive.
B. The internal rate of return (IRR) can provide information on how sensitive your analysis is to errors in
the estimate of your cost of capital.
C. In general, the difference between the cost of capital and the internal rate of return (IRR) is the
maximum amount of estimation error in the cost of capital estimate that can exist without altering the
original decision.
D. If you are unsure of your cost of capital estimate, it is important to determine how sensitive your
analysis is to errors in this estimate. - Correct Answers: A
You are opening up a brand new retail strip mall. You presently have more potential retail outlets
wanting to locate in your mall than you have space available. What is the most appropriate tool to use if
you are trying to determine the optimal allocation of your retail space? - Correct Answers: Profitability
Index
Which of the following statements is FALSE?
A. A net present value (NPV) will always exist for an investment opportunity.
B. The payback investment rule is based on the notion that an opportunity that pays back its initial
investments quickly is a good idea.
C. In general, there can be as many internal rates of return (IRRs) as the number of times the project's
cash flows change sign over time.
D. An internal rate of return (IRR) will always exist for an investment opportunity. - Correct Answers: D
T/F : When different investment rules give conflicting answers, then decisions should be based on the
Net Present Value rule, as it is most reliable and accurate decision rule. - Correct Answers: True
Which of the following statements is FALSE?
A. For most investment opportunities expenses occur initially and cash is received later.
Correct Answers
Which of the following statements is FALSE?
A. If the cost of capital estimate is more than the internal rate of return (IRR), the net present value
(NPV) will be positive.
B. The internal rate of return (IRR) can provide information on how sensitive your analysis is to errors in
the estimate of your cost of capital.
C. In general, the difference between the cost of capital and the internal rate of return (IRR) is the
maximum amount of estimation error in the cost of capital estimate that can exist without altering the
original decision.
D. If you are unsure of your cost of capital estimate, it is important to determine how sensitive your
analysis is to errors in this estimate. - Correct Answers: A
You are opening up a brand new retail strip mall. You presently have more potential retail outlets
wanting to locate in your mall than you have space available. What is the most appropriate tool to use if
you are trying to determine the optimal allocation of your retail space? - Correct Answers: Profitability
Index
Which of the following statements is FALSE?
A. A net present value (NPV) will always exist for an investment opportunity.
B. The payback investment rule is based on the notion that an opportunity that pays back its initial
investments quickly is a good idea.
C. In general, there can be as many internal rates of return (IRRs) as the number of times the project's
cash flows change sign over time.
D. An internal rate of return (IRR) will always exist for an investment opportunity. - Correct Answers: D
T/F : When different investment rules give conflicting answers, then decisions should be based on the
Net Present Value rule, as it is most reliable and accurate decision rule. - Correct Answers: True
Which of the following statements is FALSE?
A. For most investment opportunities expenses occur initially and cash is received later.
