Question : 16) If the net present value analyses of a project : 1186187

 

16) If the net present value analyses of a project resulted in a positive value and the company does not accept the project, it may be assumed that

A) qualitative factors outweigh the benefit of the investment.

B) An alternative project has a lower NPV.

C) the net initial investment cannot be recovered.

D) the return is greater than that required by the company.

E) quantitative factors outweigh the benefit of the investment.

 

17) When the present value of expected cash inflows from a project equals the present value of expected cash outflows of a project, the discount rate is the

A) universal rate.

B) internal rate of return.

C) required rate.

D) net present value rate.

E) inflation rate.

 

Use the information below to answer the following question(s).

 

Wet Water Company drills residential and commercial wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below:

 

Initial investment:

 

   Asset

$80,000

   Working capital

$16,000

Operations (per year for four years):

 

   Cash receipts

$80,000

   Cash expenditures

$44,000

Disinvestment: Salvage value of drill

(end of year four)

$8,000

Discount rate 10 percent

 

 

Note: Other than the initial investment, cash flows are end of period.

 

18) In what range is the internal rate of return?

A) 8 percent to 12 percent

B) 12 percent to 16 percent

C) 16 percent to 20 percent

D) 20 percent to 24%

E) greater than 24%

 

19) Brown Corporation recently purchased a new machine for $339,013.20. The new equipment has a useful life of 10 years. Net cash flows will be $60,000 per year, end of year payments.

What is the internal rate of return?

A) 10 percent

B) 12 percent

C) 14 percent

D) 16 percent

E) 18 percent

20) Soda Manufacturing Company provides vending machines for soft-drink manufacturers. The company has been investigating a new piece of machinery for its production department. The old equipment has a remaining life of 1 year and no sales value. The new equipment has a value of $52,650 with a three-year life. The expected additional cash inflows are $25,000 per year, end of year payments.

What is the internal rate of return?

A) 24 percent

B) 20 percent

C) 16 percent

D) 12 percent

E) 8 percent

 

21) Which of the following is true, concerning NPV?

A) When the NPV is positive, the sum of the cash flows from the project equal the initial investment.

B) When the NPV is negative, the sum of the cash flows from the project must also be negative

C) The project just recovers the initial investment, discounted by the hurdle rate.

D) The IRR is less than the RRR when the NPV is positive, after using the RRR as the discount rate.

E) The project recovers the initial investment and earns a return greater than the RRR.

 

22) In NPV analysis, if the IRR exceeds the RRR,

A) the project should be rejected.

B) the NPV will be negative (when discounted at the IRR).

C) the NPV is positive when project cash flows are discounted at the IRR.

D) the NPV is positive when project cash flows are discounted at the RRR.

E) the NPV is negative when project cash flows are discounted at the RRR.

23) In situations where the required rate of return is not constant for each year of the project, it is advantageous to use

A) the adjusted rate of return method.

B) the internal rate of return method.

C) the net present value method.

D) sensitivity analysis.

E) the payback method.

 

24) The net present value method is better than the internal rate of return because

A) managers generally find the NPV method easier to understand.

B) it always yields the same result as IRR.

C) IRR focuses more on accounting income.

D) it considers the source of cash flows.

E) the NPV’s of different projects can be added together, and investments may have multiple required rates of return.

 

25) A “what-if” technique that examines how a result will change if the original predicted data are not achieved, or if an underlying assumption changes, is called

A) sensitivity analysis.

B) net present value analysis.

C) internal rate of return analysis.

D) adjusted rate of return analysis.

E) payback method.