BUSN 5200 Week 8 BUSN 5200

BUSN 5200 Week 8 BUSN 5200 | Webster University

Question 1

Which of the following is NOT a commonly used capital budgeting technique  

NPV  

PI (Profitability index)  

Payback period 

IBT

Question 2

Which of the following is a technique for evaluating capital projects that is particularly useful when firms face time constraints in repaying investors?  

Payback  

Internal rate of return  

Net present value 

Profitability index 

Question 3

A capital budgeting technique that generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flows is referred to as:  

PI. 

IRR.  

NPV.  

MIRR.

Question 4

A project's IRR: 

is the average rate of return necessary to pay back the project's capital providers. 

will change with the cost of capital. 

is equal to the discounted cash flows divided by the number of cash flows if the cash flows are a perpetuity 

Question 5

A disadvantage of the payback statistic is that:  

it does not reflect the time value of money. 

it does not give an indication of the project's riskiness. 

it does not consider cash flows beyond the payback period. 

All of these are disadvantages of payback.

Question 6

A firm is evaluating a potential investment that is expected to generate cash flows of $100 in years 1 through 4 and $400 in years 5 through 7. The initial investment is $750. What is the payback for this investment?  

4.88 years  

4.48 years 

5.88 years  

5.48 years

Question 7

Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years, respectively. Use the NPV decision to evaluate this project; should it be accepted or rejected?

Time      0              1              2              3              4              5              6

Cash flow($s)     -85000   12000    11000    13000    21000    31000    32000  

NPV = $1,766.55; accept the project 

NPV = -$892.19; reject the project 

NPV = $1,288.94; accept the project 

NPV = -$3,577.90; reject the project

Question 8

A company is considering two mutually exclusive projects, A and B. Project A requires an initial investment of $100, followed by cash flows of $95, $20, and $5. Project B requires an initial investment of $100, followed by cash flows of $0, $20, and $130. What is the IRR of the project that is best for the company's shareholders? The firm's cost of capital is 10 percent.  

15.96 percent 

15.24 percent 

16.17 percent  

15.42 percent 

Question 9

Projects A and B are mutually exclusive. Project A costs $10,000 and is expected to generate cash inflows of $4,000 for four years. Project B costs $10,000 and is expected to generate a single cash flow in year 4 of $20,000. The cost of capital is 12 percent. Which project would you accept and why?  

Project B because it has the higher NPV. 

Project B because it has the higher IRR. 

Project A because it has the higher NPV. 

Project A because it has the higher IRR. 

Question 10

The __________________________ is a rate of return used in capital budgeting to measure and and capture the profitability of investments.  

Payback Method  

NPV 

VPN 

IRR

Question 11

NPV stands for:  

Net Present Value  

Net Present Valuation  

New Present Value 

Not Present Value