Question : 11. The IRR method assumes that cash flows reinvested at: A. the internal : 1295627

11. The IRR method assumes that cash flows are reinvested at: 
A. the internal rate of return.
B. the company’s discount rate.
C. the lower of the company’s discount rate or internal rate of return.
D. an average of the internal rate of return and the discount rate.

12. When using the NPV method, the interest rate used to discount cash flows should not be thought of as the: 
A. hurdle rate.
B. internal rate of return.
C. minimum required rate of return.
D. discount rate.

13. Which of the following statements is false regarding the interest rate used in NPV calculations? 
A. Some companies use their cost of capital as the discount rate.
B. It may be adjusted for uncertainty.
C. It should be equal to the maximum required rate of return needed to make the investment profitable.
D. It may be higher or lower than the investment’s actual internal rate of return.

14. If an investment’s net present value is positive, then: 
A. The investment provides a return greater than the discount rate.
B. The investment provides a return less than the discount rate.
C. The present value of the cash outflows must have been greater than the present value of the cash inflows.
D. The investment should be deemed as unacceptable.

15. When using the NPV method for a particular investment decision, if the present value of all cash inflows is greater than the present value of all cash outflows, then: 
A. the discount rate used was too high.
B. the investment provides an actual rate of return greater than the discount rate.
C. the investment provides an actual rate of return equal to the discount rate.
D. the discount rate was too low.

16. When using the NPV method for a particular investment decision, if the present value of the cash inflows is equal to the present value of the cash outflows, then: 
A. the discount rate used was too high.
B. the investment should not be made.
C. the investment has an actual rate of return of zero percent.
D. the discount rate is equal to the internal rate of return.

17. If the net present value of an investment is negative, then: 
A. the actual rate of return is less than the discount rate.
B. the actual rate of return is more than the discount rate.
C. the actual rate of return is negative.
D. the discount rate is negative.

18. If the net present value of an investment is negative, then: 
A. the present value of the cash inflows is greater than the present value of the cash outflows.
B. the discount rate is negative.
C. the actual rate of return is less than the minimum required rate of return.
D. increasing the cost of the investment will change the net present value to a positive number.

19. Blossoms Inc., a local florist, is considering replacing its current refrigerator used for storing flowers with a larger one. The estimated cost of the new refrigerator will be $30,000. Using a discount rate of 15%, the company calculates a net present value for the new refrigerator of $6,000. Based on this information, which of the following statements is true? 
A. If the actual cost of the new refrigerator ends up being greater than $36,000, the net present value will become negative.
B. If the actual cost of the new refrigerator ends up being less than $36,000, the net present value will become negative.
C. If the actual cost of the new refrigerator ends up being $30,000, the actual rate of return is equal to 15%.
D. If the actual cost of the new refrigerator ends up being less than $30,000, the company should not make the investment.

20. Cameo Inc., a local company specializing in home repairs, is considering replacing its older van with a new and larger one. The estimated cost of the new van will be $65,000. Using a discount rate of 18%, the company calculates a net present value for the new van of $(5,000). Based on this information, which of the following statements is true? 
A. The actual rate of return on the new van is negative.
B. If the company purchases the van, they are guaranteed a rate of return of 18%.
C. Using a higher discount rate should cause the net present value to become positive.
D. If the actual cost of the new van ends up being less than $60,000, the net present value will become positive.