Chapter 9 Multiple choice question

A project has an initial cost of $27,400 and a market value of $32,600. What is the difference between these two values called?

• net present value

• internal return

• payback value

• profitability index

• discounted payback

The length of time a firm must wait to recoup, in present value terms, the money it has invested in a project is referred to as the:

• net present value period

• internal return period

• payback period

• discounted profitability period

• discounted payback period

A project's average net income divided by its average book value is referred to as the project's average:

• net present value

• internal rate of return

• accounting return

• profitability index

• payback period

The internal rate of return is defined as the:

• maximum rate of return a firm expects to earn on a project

• rate of return a project will generate if the project in financed solely with internal funds

• discount rate that equates the net cash inflows of a project to zero

• discount rate which causes the net present value of a project to equal zero

• discount rate that causes the profitability index for a project to equal zero

You are viewing a graph that plots the NPVs of a project to various discount rates that could be applied to the project's cash flows. What is the name given to this graph?

• project tract

• projected risk profile

• NPV profile

• NPV route

• present value sequence

There are two distinct discount rates at which a particular project will have a zero net present value. In this situation, the project is said to:

• have two net present value profiles

• have operational ambiguity

• create a mutually exclusive investment decision

• produce multiple economies of scale

• have multiple rates of return

If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be:

• independent

• interdependent

• mutually exclusive

• economically scaled

• operationally distinct

The present value of an investment's future cash flows divided by the initial cost of the investment is called the:

• net present value

• internal rate of return

• average accounting return

• profitability index

• profile period

Which one of the following will decrease the net present value of a project?

• increasing the value of each of the project's discounted cash inflows

• moving each of the cash inflows back to a later time period

• decreasing the required discount rate

• increasing the project's initial cost at time zero

• increasing the amount of the final cash inflow

.Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project?

• reduction in the cash outflow at time zero

• cash inflow in the final year of the project

• cash inflow for the year following the final year of the project

• cash inflow prorated over the life of the project

• not included in the net present value