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Question # 00005280 Posted By: spqr Updated on: 12/13/2013 02:01 PM Due on: 12/15/2013
Subject Finance Topic Finance Tutorials:
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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 D├ęcor & 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 three-year 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 straight-line 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 3-year life. The company uses straight-line 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 3-year life, respectively. The initial cost of the project is $675,000. This cost is depreciated straight-line 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 6-year life. The initial cost of the project is $98,000 which will be depreciated using straight-line 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 straight-line 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 straight-line 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 straight-line 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 straight-line 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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Tutorials for this Question
  1. Tutorial # 00005093 Posted By: spqr Posted on: 12/13/2013 02:38 PM
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