Reference no: EM13336027
1. The sum of the present values of all the cash inflows and outflows is the net present value of the investment. (Points: 2)
True
False
2. If the required rate of return is greater than the internal rate of return, the firm should accept the investment. (Points: 2)
True
False
3. Depreciation itself is not a cash flow, but it reduces the amount of taxes that a company must pay. (Points: 2)
True
False
4. Which of the following techniques uses time value of money concepts? (Points: 2)
Payback method.
Internal rate of return.
Accounting rate of return.
Relative sales value method.
5. If the time value of money techniques are used correctly, cash flows far in the future will be (Points: 2)
highly discounted.
ignored.
not subjected to tax effects.
under-estimated.
6. The cost of capital is the weighted average of (Points: 2)
fixed and variable costs.
incremental cash inflows and outflows.
debt and equity financing.
net present value and internal rate of return.
7. The Diamond Oaks Company is deciding whether to purchase a machine for $80,000 which will yield the following cost savings:
Year 1 $25,000
Year 2 $40,000
Year 3 $45,000
The expected rate of return on this project is closest to:
(Points: 2)
12%.
14%.
16%.
18%.
8. How much will you need to invest today at 10% to have $10,000 six years from today? (Points: 2)
$7,050
$17,715
$5,645
$5,584
9. An investment of $100,000 promises returns of $40,000 per year for each of the next three years. If taxes are ignored and the required rate of return is 14%, what is the net present value of the project? (Points: 2)
$92,864
$20,000
($7,136)
($19,000)
10. An investment of $700,000 is expected to generate the following cash flows:
year 1 $200,000
year 2 $200,000
year 3 $100,000
year 4 $200,000
year 5 $100,000
What is the investment’s payback period?
7 years
5 years
3 years
4 years