The net present value of an investment represents the difference between the incestment’s |
cost and its market value |
discounted cash flow valuation is the process of discounting an investments |
future cash flow |
the payback period is the length of time it takes an investment to generate sufficient cash flow to enable the project to |
recoup its initial cost |
the average net income of a project divided by the projects average book value is referred to as the projects |
average accounting return |
which one of the following defines the internal rate of return for a project |
discount rate which results in a zero net present value for the project |
the net present value profile illustrates how the net present value of an investment is affected by which one of the following |
discount rate |
the possibility that more than one discount rate can cause the net present value of an investment to equal zero is referred to as |
multiple rates of return |
both project A and B are acceptable as independent projects…. |
mutually exclusive |
which one of the following can be defined as a benefit-cost ratio |
profitability index |
which one of the following indicates that a project is expected to create value for its owners |
positive net present value |
the net present value |
decreases as the required rate of return increases |
which one of the following is generally considered to be the best form of analysis if you have to select a single method to analyze a variety of investment opportunities |
net present value |
which one of the following statements is correct |
if the internal rate of return equals the required return, the net present value will equal zero |
if an investment is producing a return that is equal to the required return the investments net present value will be |
zero |
which one of the following indicates that a project should be rejected |
profitability index less than 1.0 |
which one of the following inidators offers the best assurance that a project will produce value for its owners |
positive npv |
which one of the following statements is correct? |
the payback period ignores the time value of money |
payback is best used to evaluate which type of projects |
low-cost, short-term |
which one of the following is the primary advantage of payback analysis |
ease of use |
the payback method of analysis ignores which one of the following |
time value of money |
which one of the following methods of analysis ignore the time value of money |
payback |
which one of the following methods of analysis has the greatest bias towards short term projects |
payback |
which one of the following methods of analysis ignores cash flows |
average accounting return |
which one of the following methods of anaylsis is most similar to computing the return on assets |
average accounting return |
the average accounting return |
measures profitability rather than cash flow |
which one of the analytical methods is based on net income |
average accounting return |
which one of the following is most closely related to the net present value profile |
internal rate of return |
the modified internal rate of return is specifically designed to address the problems associated with which one of the following |
unconventional cash flows |
the reinvestment approach to the modified internal rate of return |
compounds all the cash flows except for the initial cash flow to the end of the project |
which one of the following is specifically designed to compute the rate of return on a project that has unconventional cash flows |
modified internal rate of return |
which one of the following methods of analysis is most appropriate to use when two investments are mutually exculsive |
net present value |
the profitability index reflects the value created per dollar |
invested |
based on the most recent survey information presented in your textbook CFO’s tend to use which 2 methods of investment analysis the most frequently |
internal rate of return and net present value |
Mary has just been asked to analyze an investment to determine if it is acceptable…. |
net present value |
you were recently hired by a firm as a project analyst, the owner of the firm is unfamiliar with financial analysis |
profitability index |
in which one of the following situations would the payback method be the preferred method of analysis |
investment funds available only for a limited period of time |
which one of the following statements is correct |
the payback method is biased towards short term projects |
which one of the following indicated that a project is definitely acceptable |
profitability index greater than 1.0 |
Finance 318 Chapter 8
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