FIN 302 Fall 24 - Quiz #3 (11/12)

What is the primary purpose of capital budgeting?

• To manage short-term cash flow
• To evaluate long-term investment projects
• To determine daily operational expenses
• To track stock market investments
• To calculate depreciation expenses

A project requires an initial investment of $10,000 and is expected to generate cash flows of $4,000 at the end of each year for 3 years. If the discount rate is 8%, what is the Net Present Value (NPV) of the project?

• $1,024
• $2,158
• $308
• $824
• $3,471

A project has an initial cost of $10,000 in Year 0 and annual cash inflows of $2,500 from Year 1 to Year 5. What is the payback period?

• 2 years
• 3 years
• 4 years
• 5 years
• 1 year

Which of the following is a disadvantage of using the payback period method?

• It is difficult to calculate
• It considers the time value of money
• It ignores cash flows after the payback period
• It provides a more accurate measure than NPV

The Internal Rate of Return (IRR) is defined as the discount rate at which:

• The project's NPV is zero
• The project's payback period is minimized
• The project’s initial investment is doubled
• The project’s cost of capital is maximized
• The project achieves its highest profit margin