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65. You are considering an investment with the
following cash flows. If the required rate of return for this investment is
15.5 percent, should you accept the investment based solely on the internal
rate of return rule? Why or why not?
A. Yes; The IRR exceeds the required return.
B. Yes; The IRR is less than the required return.
C. No; The IRR is less than the required return.
D. No; The IRR exceeds the required return.
E. You cannot apply the IRR rule in this case.
66. Blue Water Systems is analyzing a project with the
following cash flows. Should this project be accepted based on the discounting
approach to the modified internal rate of return if the discount rate is 14
percent? Why or why not?
A. Yes; The MIRR is 13.48 percent.
B. Yes; The MIRR is 17.85 percent.
C. Yes; The MIRR is 21.23 percent.
D. No; The MIRR is 5.73 percent.
E. No; The MIRR is 17.85 percent.
67. Sheakley Industries is considering expanding its
current line of business and has developed the following expected cash flows
for the project. Should this project be accepted based on the discounting
approach to the modified internal rate of return if the discount rate is 13.4
percent? Why or why not?
A. Yes; The MIRR is 6.50 percent.
B. Yes; The MIRR is 7.59 percent.
C. Yes; The MIRR is 8.23 percent.
D. No; The MIRR is 6.50 percent.
E. No; The MIRR is 7.59 percent.
68. Cool Water Drinks is considering a proposed
project with the following cash flows. Should this project be accepted based on
the combined approach to the modified internal rate of return if both the
discount rate and the reinvestment rate are 12.6 percent? Why or why not?
A. Yes; The MIRR is 8.81 percent.
B. Yes; The MIRR is 9.23 percent.
C. No; The MIRR is 8.81 percent.
D. No; The MIRR is 9.06 percent.
E. No; The MIRR is 9.23 percent.
69. Home Décor & More is considering a proposed
project with the following cash flows. Should this project be accepted based on
the combination approach to the modified internal rate of return if both the
discount rate and the reinvestment rate are 16 percent? Why or why not?
A. Yes; The MIRR is 14.78 percent.
B. Yes; The MIRR is 15.64 percent.
C. No; The MIRR is 12.91 percent.
D. No; The MIRR is 14.78 percent.
E. No; The MIRR is 15.64 percent
70. What is the profitability index for an investment
with the following cash flows given a 14.5 percent required return?
A. 0.94
B. 0.98
C. 1.02
D. 1.06
E. 1.11
71. Based on the profitability index rule, should a
project with the following cash flows be accepted if the discount rate is 14
percent? Why or why not?
A. Yes; The PI is 0.96.
B. Yes; The PI is 1.04.
C. Yes; The PI is 1.08.
D. No; The PI is 0.96.
E. No; The PI is 1.04.
72. You are considering two independent projects both
of which have been assigned a discount rate of 15 percent. Based on the
profitability index, what is your recommendation concerning these projects?
A. You should accept both projects.
B. You should reject both projects.
C. You should accept project A and reject project B.
D. You should accept project B and reject project A.
E. You should accept project A and be indifferent to project B.
73. You would like to invest in the following project.
Sis, your boss, insists that only projects returning at least $1.06 in today's
dollars for every $1 invested can be accepted. She also insists on applying a
14 percent discount rate to all cash flows. Based on these criteria, you should:
A. accept the project because the PI is 0.90.
B. accept the project because the PI is 1.04.
C. accept the project because the PI is 1.11.
D. reject the project because the PI is 0.90.
E. reject the project because the PI is 0.96.
74. It will cost $6,000 to acquire an ice cream cart.
Cart sales are expected to be $3,600 a year for three years. After the three
years, the cart is expected to be worthless as the expected life of the
refrigeration unit is only three years. What is the payback period?
A. 1.48 years
B. 1.67 years
C. 1.82 years
D. 1.95 years
E. 2.00 years
75. You are considering a project with an initial cost
of $7,800. What is the payback period for this project if the cash inflows are
$1,100, $1,640, $3,800, and $4,500 a year over the next four years,
respectively?
A. 3.21 years
B. 3.28 years
C. 3.36 years
D. 4.21 years
E. 4.29 years
76. A project has an initial cost of $6,500. The cash
inflows are $900, $2,200, $3,600, and $4,100 over the next four years,
respectively. What is the payback period?
A. 1.73 years
B. 2.51 years
C. 2.94 years
D. 3.51 years
E. 3.94 years
77. Alicia is considering adding toys to her gift
shop. She estimates that the cost of inventory will be $7,500. The remodeling
expenses and shelving costs are estimated at $1,500. Toy sales are expected to
produce net cash inflows of $1,800, $2,700, $3,200, and $3,400 over the next
four years, respectively. Should Alicia add toys to her store if she assigns a
threeyear payback period to this project? Why or why not?
A. No; The payback period is 2.93 years.
B. No; The payback period is 3.38 years.
C. Yes; The payback period is 2.93 years.
D. Yes; The payback period is 3.01 years.
E. Yes; The payback period is 3.38 years.
78. A project has an initial cost of $18,400 and
produces cash inflows of $7,200, $8,900, and $7,500 over three years,
respectively. What is the discounted payback period if the required rate of
return is 16 percent?
A. 2.31 years
B. 2.45 years
C. 2.55 years
D. 2.62 years
E. never
79. Scott is considering a project that will produce
cash inflows of $2,100 a year for 4 years. The project has a 12 percent
required rate of return and an initial cost of $5,000. What is the discounted
payback period?
A. 2.97 years
B. 3.11 years
C. 3.26 years
D. 4.38 years
E. never
80. J&J Enterprises is considering an investment
that will cost $318,000. The investment produces no cash flows for the first
year. In the second year, the cash inflow is $47,000. This inflow will increase
to $198,000 and then $226,000 for the following two years, respectively, before
ceasing permanently. The firm requires a 15.5 percent rate of return and has a
required discounted payback period of three years. Should the project be
accepted? Why or why not?
A. accept; The discounted payback period is 2.18 years.
B. accept; The discounted payback period is 2.32 years.
C. accept; The discounted payback period is 2.98 years.
D. reject; The discounted payback period is 2.18 years.
E. reject; The project never pays back on a discounted basis.
81. The Square Box is considering two projects, both
of which have an initial cost of $35,000 and total cash inflows of $50,000. The
cash inflows of project A are $5,000, $10,000, $15,000, and $20,000 over the
next four years, respectively. The cash inflows for project B are $20,000,
$15,000, $10,000, and $5,000 over the next four years, respectively. Which one
of the following statements is correct if The Square Box requires a 12 percent
rate of return and has a required discounted payback period of 3.5 years?
A. Both projects should be accepted.
B. Both projects should be rejected.
C. Project A should be accepted and project B should be rejected.
D. Project A should be rejected and project B should be accepted.
E. You should be indifferent to accepting either or both projects.
82. The Green Fiddle is considering a project that
will produce sales of $87,000 a year for the next 4 years. The profit margin is
estimated at 6 percent. The project will cost $90,000 and will be depreciated
straightline to a book value of zero over the life of the project. The firm
has a required accounting return of 11 percent. This project should be _____
because the AAR is _____ percent.
A. rejected; 10.03
B. rejected; 10.25
C. rejected; 11.60
D. accepted; 10.25
E. accepted; 11.60
83. A project has an initial cost of $35,000 and a
3year life. The company uses straightline depreciation to a book value of
zero over the life of the project. The projected net income from the project is
$1,200, $2,300, and $1,800 a year for the next 3 years, respectively. What is
the average accounting return?
A. 8.72 percent
B. 10.10 percent
C. 11.26 percent
D. 14.69 percent
E. 15.14 percent
84. A project produces annual net income of $46,200,
$51,800, and $62,900 over its 3year life, respectively. The initial cost of
the project is $675,000. This cost is depreciated straightline to a zero book
value over three years. What is the average accounting rate of return if the
required discount rate is 14.5 percent?
A. 15.89 percent
B. 16.67 percent
C. 18.98 percent
D. 20.25 percent
E. 23.84 percent
85. A project has average net income of $5,600 a year
over its 6year life. The initial cost of the project is $98,000 which will be
depreciated using straightline depreciation to a book value of zero over the
life of the project. The firm wants to earn a minimum average accounting return
of 11.5 percent. The firm should _____ the project because the AAR is _____
percent.
A. accept; 5.71
B. accept; 9.90
C. accept; 11.43
D. reject; 5.71
E. reject; 11.43
86. Colin is analyzing a project and has gathered the
following data. Based on this data, what is the average accounting rate of
return? The project's assets will be depreciated using straightline depreciation
to a zero book value over the life of the project.
A. 6.94 percent
B. 13.88 percent
C. 15.66 percent
D. 27.75 percent
E. 31.31 percent
87. You are analyzing the following two mutually
exclusive projects and have developed the following information. What is the
crossover rate?
A. 13.17 percent
B. 13.33 percent
C. 14.32 percent
D. 14.96 percent
E. 15.20 percent
88. Boston Chicken is considering two mutually
exclusive projects with the following cash flows. What is the crossover rate?
If the required rate of return is lower than the crossover rate, which project
should be accepted?
A. 14.72 percent; A
B. 14.72 percent; B
C. 15.99 percent; A
D. 15.99 percent; B
E. 16.08 percent; B
89. You are analyzing a project and have gathered the
following data:
Based on the profitability index of _____ for this project, you should _____
the project.
A. 0.93; accept
B. 1.02; accept
C. 1.07; accept
D. 0.93; reject
E. 1.07; reject
90. You are analyzing a project and have gathered the
following data:
Based on the internal rate of return of _____ percent for this project, you
should _____ the project.
A. 14.67; accept
B. 17.91; accept
C. 14.67; reject
D. 17.91; reject
E. 18.46; reject
91. You are analyzing a project and have gathered the
following data:
Based on the net present value of _____, you should _____ the project.
A. $15,030.75; reject
B. $12,995.84; reject
C. $9,283.60; accept
D. $9,283.60; accept
E. $12,995.84; accept
92. You are analyzing a project and have gathered the
following data:
Based on the payback period of _____ years for this project, you should _____
the project.
A. 2.79; accept
B. 3.79; accept
C. 2.46; reject
D. 2.79; reject
E. 3.79; reject
93. You are considering the following two mutually
exclusive projects. Both projects will be depreciated using straightline
depreciation to a zero book value over the life of the project. Neither project
has any salvage value.
Should you accept or reject these projects based on net present value
analysis?
A. accept Project A and reject Project B
B. reject Project A and accept Project B
C. accept both Projects A and B
D. reject both Projects A and B
E. You cannot make this decision based on net present value analysis.
94. You are considering the following two mutually
exclusive projects. Both projects will be depreciated using straightline
depreciation to a zero book value over the life of the project.
Neither project has any salvage value.
Should you accept or reject these projects based on IRR analysis?
A. accept Project A and reject Project B
B. reject Project A and accept Project B
C. accept both Projects A and B
D. reject both Projects A and B
E. You cannot make this decision based on internal rate of return
analysis.
95. You are considering the following two mutually
exclusive projects. Both projects will be depreciated using straightline
depreciation to a zero book value over the life of the project. Neither project
has any salvage value.
Should you accept or reject these projects based on payback analysis?
A. accept Project A and reject Project B
B. reject Project A and accept Project B
C. accept both Projects A and B
D. reject both Projects A and B
E. You cannot make this decision based on payback analysis.

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