Finance Questions
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The net present value (NPV) method and internal rate of return (IRR) give the same answer to the question as to whether a project is a good investment or a bad investment
Which of the following methods of capital budgeting is based on the concept that it is better to recover the cost of (investment in) a project sooner rather than later?
An increase in the discount rate of a project will lead to a decrease in the NPV of the project.
The _____ involves comparing the actual results with those predicted by the project's sponsors and explaining why any differences occur.
Tangerine Inc. is evaluating a capital project for investment. The initial cash outflow in Year 0 is $1,500 followed by cash inflow of $500 each year for four years. Which of the following is the terminal value of the project? Assume the required rate of return is 12%. (Round off the answer to two decimal places.)
Effective capital budgeting can improve the timing of asset acquisition and the quality of assets purchased, thereby providing an opportunity to purchase and install assets before they are needed.
To add the greatest value to a firm, mutually exclusive projects that differ in scale or timing should be evaluated using the _____.
With the improvement in the technology and understanding of discounting techniques, both NPV and IRR methods of capital budgeting became more popular because _____.
Seattle Corporation identifies an investment opportunity that will yield end of year cash flows of $30,000 per year in Years 1 through 2, $35,000 per year in Years 3 through 4, and $40,000 in Year 5. This investment will cost the firm $100,000 today, and the firm's required rate of return is 10 percent. What is the NPV for this investment? (Round off the answer to two decimal places.)
The two main purposes of post-audit are to improve forecasts, and to improve operations.
Other things held constant, an increase in the required rate of return will result in _____.
Seattle Inc. identifies an investment opportunity, which will yield cash flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in Year 10. The initial cash outflow is $150,000, and the firm's required rate of return is 10 percent. Assume cash flows occur evenly during the year, 1/365th each day. What is the payback period for this investment? (Round off the answer to two decimal places.)
An investment project has an initial cost, and then generates inflows of $50 a year for the next five years. The project has a payback period of 3.6 years. What is the project's investment cost?
The NPV method implicitly assumes that the rate at which cash flows can be reinvested is the required rate of return, whereas the IRR method implies that the firm has the opportunity to reinvest at the project's IRR.
Modified internal rate of return is the discount rate that forces the present value of the terminal value to be equal to _____.
The capital budgeting director of Sparrow Corporation is evaluating a project that costs $200,000, is expected to last for 10 years and produces after-tax cash flows, including depreciation, of $44,503 per year. If the firm's required rate of return is 14 percent and its tax rate is 40 percent, what is the project's IRR?
The net present value (NPV) of a project is negative when the discount rate used is:
If a capital budgeting project is purchased, a firm's value, and thus its stockholders' wealth, will increase by the amount of the project's _____.
The NPV and IRR methods will always lead to the same accept/reject decision for mutually exclusive projects.
If a project's net benefit computed on a present value basis—that is, NPV—is positive, then: