IMAG0774

I. Net present value is the present value of the cash flows subtracted from the initial in vestment.

A. True False

2.    Projects with an NPV of zero decrease shareholders' wealth by the cost of the project.

.^>s A. Trixe

False

3.    Which of the fbllowing statements is correct for a project with a positive NPV? fa^IRR exceeds the cost of Capital.

b.    Accepting the project has an indeterminate effect on shareholders.

c.    The discount ratę exceeds the cost of Capital.

d.    The profitability index equals one.

4.    What is the NPV of a project that costs $ 100,000 and retums $45,000 annually for three years if the opportunity cost of Capital is 14%?

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<3^4,473.44

||E $p%100.00

d. $35,000.00

5.    The decision rule for net present value is to:

a.    accept all projects with cash inflows exceeding initial cost.

b.    reject all projects with rates of return exceeding the opportunity cost of Capital.

Q accept all projects with positive net present values.

d. reject all projects lasting longer than 10 years.

6.    Which of the following changes will increase the NPV of a project? r'aTA decrease in the discount ratę

b.    A decrease in the size of the cash inflows

c.    An increase in the initial cost of the project

d.    A decrease in the number of cash inflows

7.    What is the maximum that should be invested in a project at time zero if the inflows are estimated at $40,000 annually for three years, and the cost of Capital is 9%?

/a| $101,251.79

b.    $109,200.00

c.    $117,871.97

d.    $130,800.00

8.    If the IRR for a project is 15%, then the projecfs NPV would be:

a.    negative at a discount ratę of 10%.

b.    positive at a discount ratę of 20%.

<£^negative at a discount ratę of 20%.

d. positive at a discount ratę of 15%.