AACSB Quiz with verified answers
rated A+ 2025/2026
Methods of evaluating Cash Flows: - correct answer ✔✔1. Net present value (NPV)
2. Internal Rate of Return (IRR)
3. Modified Internal Rate of Return (MIRR)
4. Profitability Index (PI)
5. Payback Period
If we are in an expanding market and stock prices increase, we want - correct answer ✔✔a
higher beta with a higher expected return
Value is measured by - correct answer ✔✔NPV
What is Net Present Value (NPV) - correct answer ✔✔tells us the true value that is created or
destroyed by a project
-present value of all future cash flows discounted back to today
The higher the net present value... - correct answer ✔✔The higher the net present value...
-If NPV is above 0, we accept
-If NPV is below 0, we reject
as cost of capital increases NVP - correct answer ✔✔decreases
-and vice versa they have an inverse relationship
, What is IRR - correct answer ✔✔the discount rate that forces PV inflows = cost.
-This is the same as forcing NPV = 0.
-we include year 0 in excel
If IRR is greater than cost of capital, we should - correct answer ✔✔accept the project
-if its lower reject it
4 Pitfalls of internal rate of return (IRR) - correct answer ✔✔1. lending and borrowing
2. Multiple rates of return
3. Magnitude of Project
4. Reinvestment rate
Reinvestment rate (pitfall to IRR) - correct answer ✔✔Assumes funds are reinvested at IRR
(poor assumption)
-Reinvesting at cost of capital is more realistic and more conservative in most cases
What is modified internal rate of return - correct answer ✔✔the discount rate that causes the
PV of a project's terminal value (TV) to equal the PV of costs
-MIRR more accurately reflects the costs and profitability of a project
- highlight the values in excel finance rate and investment rate are both cost of capital
Magnitude of project (pitfall to IRR) - correct answer ✔✔IRR does not accurately reflect the
value created by project if the projects have different sizes or magnitudes (different number of
cash outflow)
-Cant use IRR need to solve with NPV
rated A+ 2025/2026
Methods of evaluating Cash Flows: - correct answer ✔✔1. Net present value (NPV)
2. Internal Rate of Return (IRR)
3. Modified Internal Rate of Return (MIRR)
4. Profitability Index (PI)
5. Payback Period
If we are in an expanding market and stock prices increase, we want - correct answer ✔✔a
higher beta with a higher expected return
Value is measured by - correct answer ✔✔NPV
What is Net Present Value (NPV) - correct answer ✔✔tells us the true value that is created or
destroyed by a project
-present value of all future cash flows discounted back to today
The higher the net present value... - correct answer ✔✔The higher the net present value...
-If NPV is above 0, we accept
-If NPV is below 0, we reject
as cost of capital increases NVP - correct answer ✔✔decreases
-and vice versa they have an inverse relationship
, What is IRR - correct answer ✔✔the discount rate that forces PV inflows = cost.
-This is the same as forcing NPV = 0.
-we include year 0 in excel
If IRR is greater than cost of capital, we should - correct answer ✔✔accept the project
-if its lower reject it
4 Pitfalls of internal rate of return (IRR) - correct answer ✔✔1. lending and borrowing
2. Multiple rates of return
3. Magnitude of Project
4. Reinvestment rate
Reinvestment rate (pitfall to IRR) - correct answer ✔✔Assumes funds are reinvested at IRR
(poor assumption)
-Reinvesting at cost of capital is more realistic and more conservative in most cases
What is modified internal rate of return - correct answer ✔✔the discount rate that causes the
PV of a project's terminal value (TV) to equal the PV of costs
-MIRR more accurately reflects the costs and profitability of a project
- highlight the values in excel finance rate and investment rate are both cost of capital
Magnitude of project (pitfall to IRR) - correct answer ✔✔IRR does not accurately reflect the
value created by project if the projects have different sizes or magnitudes (different number of
cash outflow)
-Cant use IRR need to solve with NPV
