2023年公司理财英文版题库

CHAPTER7NetPresentValueandOtherInvestmentRulesMultipleChoiceQuestions:I. DEFINITIONSNETPRESENTVALUEa 1. Thedifferencebetweenthepresentvalueofaninvestmentanditscostisthe: a. netpresentvalue. b. internalrateofreturn. c. paybackperiod. d. profitabilityindex. e. discountedpaybackperiod. Difficultylevel:EasyNETPRESENTVALUERULEc 2. Whichoneofthefollowingstatementsconcerningnetpresentvalue(NPV)iscorrect? a. Aninvestmentshouldbeacceptedif,andonlyif,theNPVisexactlyequaltozero. b. AninvestmentshouldbeacceptedonlyiftheNPVisequaltotheinitialcashflow. c. AninvestmentshouldbeacceptediftheNPVispositiveandrejectedifitisnegative. d. Aninvestmentwithgreatercashinflowsthancashoutflows,regardlessofwhenthecashflowsoccur,willalwayshaveapositiveNPVandthereforeshouldalwaysbeaccepted. e. Anyprojectthathaspositivecashflowsforeverytimeperiodaftertheinitialinvestmentshouldbeaccepted. Difficultylevel:EasyPAYBACKc 3. Thelengthoftimerequiredforaninvestmenttogeneratecashflowssufficienttorecovertheinitialcostoftheinvestmentiscalledthe: a. netpresentvalue. b. internalrateofreturn. c. paybackperiod. d. profitabilityindex. e. discountedcashperiod. Difficultylevel:EasyPAYBACKRULEa 4. Whichoneofthefollowingstatementsiscorrectconcerningthepaybackperiod? a. Aninvestmentisacceptableifitscalculatedpaybackperiodislessthansomepre-specifiedperiodoftime. b. Aninvestmentshouldbeacceptedifthepaybackispositiveandrejectedifitisnegative. c. Aninvestmentshouldberejectedifthepaybackispositiveandacceptedifitisnegative. d. Aninvestmentisacceptableifitscalculatedpaybackperiodisgreaterthansomepre-specifiedperiodoftime. e. Aninvestmentshouldbeacceptedanytimethepaybackperiodislessthanthediscountedpaybackperiod,givenapositivediscountrate. Difficultylevel:EasyDISCOUNTEDPAYBACKe 5. Thelengthoftimerequiredforaproject’sdiscountedcashflowstoequaltheinitialcostoftheprojectiscalledthe: a. netpresentvalue. b. internalrateofreturn. c. paybackperiod. d. discountedprofitabilityindex. e. discountedpaybackperiod. Difficultylevel:EasyDISCOUNTEDPAYBACKRULEd 6. Thediscountedpaybackrulestatesthatyoushouldacceptprojects: a. whichhaveadiscountedpaybackperiodthatisgreaterthansomepre-specifiedperiodoftime. b. ifthediscountedpaybackispositiveandrejectedifitisnegative. c. onlyifthediscountedpaybackperiodequalssomepre-specifiedperiodoftime. d. ifthediscountedpaybackperiodislessthansomepre-specifiedperiodoftime. e. onlyifthediscountedpaybackperiodisequaltozero. Difficultylevel:EasyAVERAGEACCOUNTINGRETURNc 7. Aninvestment’saveragenetincomedividedbyitsaveragebookvaluedefinestheaverage: a. netpresentvalue. b. internalrateofreturn. c. accountingreturn. d. profitabilityindex. e. paybackperiod. Difficultylevel:EasyAVERAGEACCOUNTINGRETURNRULEb 8. Aninvestmentisacceptableifitsaverageaccountingreturn(AAR): a. islessthanatargetAAR. b. exceedsatargetAAR. c. exceedsthefirm’sreturnonequity(ROE). d. islessthanthefirm’sreturnonassets(ROA). e. isequaltozeroandonlywhenitisequaltozero. Difficultylevel:EasyINTERNALRATEOFRETURNb. 9. Thediscountratethatmakesthenetpresentvalueofaninvestmentexactlyequalto zeroiscalledthe: a. externalrateofreturn. b. internalrateofreturn. c. averageaccountingreturn. d. profitabilityindex. e. equalizer. Difficultylevel:EasyINTERNALRATEOFRETURNRULEd 10. AninvestmentisacceptableifitsIRR: a. isexactlyequaltoitsnetpresentvalue(NPV). b. isexactlyequaltozero. c. islessthantherequiredreturn. d. exceedstherequiredreturn. e. isexactlyequalto100percent. Difficultylevel:EasyMULTIPLERATESOFRETURNe 11. ThepossibilitythatmorethanonediscountratewillmaketheNPVofaninvestmentequaltozeroiscalledthe_____problem. a. netpresentvalueprofiling b. operationalambiguity c. mutuallyexclusiveinvestmentdecision d. issuesofscale e. multipleratesofreturn Difficultylevel:MediumMUTUALLYEXCLUSIVEPROJECTSc 12. Asituationinwhichacceptingoneinvestmentpreventstheacceptanceofanotherinvestmentiscalledthe: a. netpresentvalueprofile. b. operationalambiguitydecision. c. mutuallyexclusiveinvestmentdecision. d. issuesofscaleproblem. e. multiplechoicesofoperationsdecision. Difficultylevel:EasyPROFITABILITYINDEXd. 13. Thepresentvalueofaninvestment’sfuturecashflowsdividedbytheinitialcostoftheinvestmentiscalledthe: a. netpresentvalue. b. internalrateofreturn. c. averageaccountingreturn. d. profitabilityindex. e. profileperiod. Difficultylevel:EasyPROFITABILITYINDEXRULEa 14. Aninvestmentisacceptableiftheprofitabilityindex(PI)oftheinvestmentis: a. greaterthanone. b. lessthanone. c. greaterthantheinternalrateofreturn(IRR). d. lessthanthenetpresentvalue(NPV). e. greaterthanapre-specifiedrateofreturn. Difficultylevel:EasyII. CONCEPTSNETPRESENTVALUEd 15. Allelseconstant,thenetpresentvalueofaprojectincreaseswhen: a. thediscountrateincreases. b. eachcashinflowisdelayedbyoneyear. c. theinitialcostofaprojectincreases. d. therateofreturndecreases. e. allcashinflowsoccurduringthelastyearofaproject’slifeinsteadof periodicallythroughoutthelifeoftheproject. Difficultylevel:EasyNETPRESENTVALUEa 16. Theprimaryreasonthatcompanyprojectswithpositivenetpresentvaluesare consideredacceptableisthat: a. theycreatevaluefortheownersofthefirm. b. theproject’srateofreturnexceedstherateofinflation. c. theyreturntheinitialcashoutlaywithinthreeyearsorless. d. therequiredcashinflowsexceedtheactualcashinflows. e. theinvestment’scostexceedsthepresentvalueofthecashinflows. Difficultylevel:EasyNETPRESENTVALUEd 17. Ifaprojecthasanetpresentvalueequaltozero,then: I. thepresentvalueofthecashinflowsexceedstheinitialcostoftheproject. II. theprojectproducesarateofreturnthatjustequalstheraterequiredtoacceptthe project. III. theprojectisexpectedtoproduceonlytheminimallyrequiredcashinflows. IV. anydelayinreceivingtheprojectedcashinflowswillcausetheprojecttohavea negativenetpresentvalue. a. IIandIIIonly b. IIandIVonly c. I,II,andIVonly d. II,III,andIVonly e. I,II,andIIIonly Difficultylevel:MediumNETPRESENTVALUEb 18. Netpresentvalue: a. cannotbeusedwhendecidingbetweentwomutuallyexclusiveprojects. b. ismoreusefultodecisionmakersthantheinternalrateofreturnwhencomparing differentsizedprojects. c. iseasytoexplaintonon-financialmanagersandthusistheprimarymethodofanalysis usedbythelowestlevelsofmanagement. d. isnotanaswidelyusedtoolaspaybackanddiscountedpayback e. isverysimilarinitsmethodologytotheaverageaccountingreturn. Difficultylevel:EasyPAYBACKc 19. Paybackisfrequentlyusedtoanalyzeindependentprojectsbecause: a. itconsidersthetimevalueofmoney. b. allrelevantcashflowsareincludedintheanalysis. c. itiseasyandquicktocalculate. d. itisthemostdesirableofalltheavailableanalyticalmethodsfromafinancial perspective. e. itproducesbetterdecisionsthanthosemadeusingeitherNPVorIRR. Difficultylevel:EasyPAYBACKc 20. Theadvantagesofthepaybackmethodofprojectanalysisincludethe: I. applicationofadiscountratetoeachseparatecashflow. II. biastowardsliquidity. III. easeofuse. IV. arbitrarycutoffpoint. a. IandIIonly b. IandIIIonly c. IIandIIIonly d. IIandIVonly e. II,III,andIVonly Difficultylevel:MediumPAYBACKd 21. Allelseequal,thepaybackperiodforaprojectwilldecreasewheneverthe: a. initialcostincreases. b. requiredreturnforaprojectincreases. c. assigneddiscountratedecreases. d. cashinflowsaremovedforwardintime. e. durationofaprojectislengthened. Difficultylevel:MediumDISCOUNTEDPAYBACKd 22. Thediscountedpaybackperiodofaprojectwilldecreasewheneverthe: a. discountrateappliedtotheprojectisincreased. b. initialcashoutlayoftheprojectisincreased. c. timeperiodoftheprojectisincreased. d. amountofeachprojectcashflowisincreased. e. costsofthefixedassetsutilizedintheprojectincrease. Difficultylevel:MediumDISCOUNTEDPAYBACKa 23. Thediscountedpaybackrulemaycause: a. somepositivenetpresentvalueprojectstoberejected. b. themostliquidprojectstoberejectedinfavoroflessliquidprojects. c. projectstobeincorrectlyacceptedduetoignoringthetimevalueofmoney. d. projectswithnegativenetpresentvaluestobeaccepted. e. someprojectstobeacceptedwhichwouldotherwiseberejectedunderthepayback rule. Difficultylevel:EasyINTERNALRATEOFRETURNb 24. Theinternalrateofreturn(IRR): I. rulestatesthataprojectwithanIRRthatislessthantherequiredrateshouldbe accepted. II. istherategeneratedsolelybythecashflowsofaninvestment. III. istheratethatcausesthenetpresentvalueofaprojecttoexactlyequalzero. IV. caneffectivelybeusedtoanalyzeallinvestmentscenarios. a. IandIVonly b. IIandIIIonly c. I,II,andIIIonly d. II,III,andIVonly e. I,II,III,andIV Difficultylevel:MediumINTERNALRATEOFRETURNa 25. Theinternalrateofreturnforaprojectwillincreaseif: a. theinitialcostoftheprojectcanbereduced. b. thetotalamountofthecashinflowsisreduced. c. eachcashinflowismovedsuchthatitoccursoneyearlaterthanoriginallyprojected. d. therequiredrateofreturnisreduced. e. thesalvagevalueoftheprojectisomittedfromtheanalysis. Difficultylevel:MediumINTERNALRATEOFRETURNc 26. Theinternalrateofreturnis: a. morereliableasadecisionmakingtoolthannetpresentvaluewheneveryouare consideringmutuallyexclusiveprojects. b. equivalenttothediscountratethatmakesthenetpresentvalueequaltoone. c. difficulttocomputewithouttheuseofeitherafinancialcalculatororacomputer. d. dependentupontheinterestratesofferedinthemarketplace. e. abettermethodologythannetpresentvaluewhendealingwithunconventionalcash flows. Difficultylevel:MediumINTERNALRATEOFRETURNa 27. Theinternalrateofreturntendstobe: a. easierformanagerstocomprehendthanthenetpresentvalue. b. extremelyaccurateevenwhencashflowestimatesarefaulty. c. ignoredbymostfinancialanalysts. d. usedprimarilytodifferentiatebetweenmutuallyexclusiveprojects. e. utilizedinprojectanalysisonlywhenmultiplenetpresentvaluesapply. Difficultylevel:EasyINCREMENTALINTERNALRATEOFRETURNe 28. YouaretryingtodeterminewhethertoacceptprojectAorprojectB.Theseprojectsaremutuallyexclusive.Aspartofyouranalysis,youshouldcomputetheincrementedIRRbydetermining: a. theinternalrateofreturnforthecashflowsofeachproject. b. thenetpresentvalueofeachprojectusingtheinternalrateofreturnasthediscount rate. c. thediscountratethatequatesthediscountedpaybackperiodsforeachproject. d. thediscountratethatmakesthenetpresentvalueofeachprojectequalto1. e. theinternalrateofreturnforthedifferencesinthecashflowsofthetwoprojects. Difficultylevel:MediumINCREMENTALINTERNALRATEOFRETURNb 29. GraphingtheincrementalIRRhelpsexplain: a. whyoneprojectisalwayssuperiortoanotherproject. b. howdecisionsconcerningmutuallyexclusiveprojectsarederived. c. howthedurationofaprojectaffectsthedecisionastowhichprojecttoaccept. d. howthenetpresentvalueandtheinitialcashoutflowofaprojectarerelated. e. howtheprofitabilityindexandthenetpresentvaluearerelated. Difficultylevel:MediumPROFITABILITYINDEXd 30. Theprofitabilityindexiscloselyrelatedto: a. payback. b. discountedpayback. c. theaverageaccountingreturn. d. netpresentvalue. e. mutuallyexclusiveprojects. Difficultylevel:EasyPROFITABILITYINDEXb 31. Analysisusingtheprofitabilityindex: a. frequentlyconflictswiththeacceptandrejectdecisionsgeneratedbytheapplicationof thenetpresentvaluerule. b. isusefulasadecisiontoolwheninvestmentfundsarelimited. c. isusefulwhentryingtodeterminewhichoneoftwomutuallyexclusiveprojects shouldbeaccepted. d. utilizesthesamebasicvariablesasthoseusedintheaverageaccountingreturn. e. producesresultswhichtypicallyaredifficulttocomprehendorapply. Difficultylevel:MediumPROFITABILITYINDEXe 32. Ifyouwanttoreviewaprojectfromabenefit-costperspective,youshouldusethe _____methodofanalysis. a. netpresentvalue b. payback c. internalrateofreturn d. averageaccountingreturn e. profitabilityindex Difficultylevel:EasyPROFITABILITYINDEXb 33. Whenthepresentvalueofthecashinflowsexceedstheinitialcostofaproject,then theprojectshouldbe: a. acceptedbecausetheinternalrateofreturnispositive. b. acceptedbecausetheprofitabilityindexisgreaterthan1. c. acceptedbecausetheprofitabilityindexisnegative. d. rejectedbecausetheinternalrateofreturnisnegative. e. rejectedbecausethenetpresentvalueisnegative. Difficultylevel:EasyMUTUALLYEXCLUSIVEPROJECTSc 34. Whichoneofthefollowingisthebestexampleoftwomutuallyexclusiveprojects? a. planningtobuildawarehouseandaretailoutletsidebyside b. buyingsufficientequipmenttomanufacturebothdesksandchairssimultaneously c. usinganemptywarehouseforstorageorrentingitentirelyouttoanotherfirm d. usingthecompanysalesforcetopromotesalesofbothshoesandsocks e. buyingbothinventoryandfixedassetsusingfundsfromthesamebondissue Difficultylevel:MediumMUTUALLYEXCLUSIVEPROJECTSd 35. TheLibertyCo.isconsideringtwoprojects.ProjectAconsistsofbuildingawholesale bookoutletonlot#169oftheEnglewood asit-downrestaurantonlot#169oftheEnglewood decidewhetherorbuildthebookoutletortherestaurant,managementshouldrely mostheavilyontheanalysisresultsfromthe_____methodofanalysis. a. profitabilityindex b. internalrateofreturn c. payback d. netpresentvalue e. accountingrateofreturn Difficultylevel:MediumMUTUALLYEXCLUSIVEPROJECTSc 36. Whentwoprojectsbothrequirethetotaluseofthesamelimitedeconomicresource, theprojectsaregenerallyconsideredtobe: a. independent. b. marginallyprofitable. c. mutuallyexclusive. d. acceptable. e. internallyprofitable. Difficultylevel:EasyMUTUALLYEXCLUSIVEPROJECTSc 37. Mattisanalyzingtwomutuallyexclusiveprojectsofsimilarsizeandhaspreparedthe followingdata.Bothprojectshave5yearlives. ProjectA ProjectB Netpresentvalue $15,090 $14,693 Paybackperiod 2.76years 2.51years Averageaccountingreturn 9.3percent 9.6percent Requiredreturn 8.3percent 8.0percent RequiredAAR 9.0percent 9.0percentMatthasbeenaskedforhisbestrecommendationgiventhisinformation.Hisrecommendationshouldbetoaccept: a. projectBbecauseithastheshortestpaybackperiod. b. bothprojectsastheybothhavepositivenetpresentvalues. c. projectAandrejectprojectBbasedontheirnetpresentvalues. d. projectBandrejectprojectAbasedontheiraverageaccountingreturns. e. projectBandrejectprojectAbasedonboththepaybackperiodandtheaverage accountingreturn. Difficultylevel:MediumINVESTMENTANALYSISa 38. Giventhatthenetpresentvalue(NPV)isgenerallyconsideredtobethebestmethod ofanalysis,whyshouldyoustillusetheothermethods? a. Theothermethodshelpvalidatewhetherornottheresultsfromthenetpresentvalue analysisarereliable. b. Youneedtousetheothermethodssinceconventionalpracticedictatesthatyouonly acceptprojectsafteryouhavegeneratedthreeacceptindicators. c. Youneedtouseothermethodsbecausethenetpresentvaluemethodisunreliable whenaprojecthasunconventionalcashflows. d. Theaverageaccountingreturnmustalwaysindicateacceptancesincethisisthebest methodfromafinancialperspective. e. Thediscountedpaybackmethodmustalwaysbecomputedtodetermineifaproject returnsapositivecashflowsinceNPVdoesnotmeasurethisaspectofaproject. Difficultylevel:MediumINVESTMENTANALYSISe 39. Inactualpractice,managersfrequentlyusethe: I. AARbecausetheinformationissoreadilyavailable. II. IRRbecausetheresultsareeasytocommunicateandunderstand. III. paybackbecauseofitssimplicity. IV. netpresentvaluebecauseitisconsideredbymanytobethebestmethodofanalysis. a. IandIIIonly b. IIandIIIonly c. I,III,andIVonly d. II,III,andIVonly e. I,II,III,andIV Difficultylevel:MediumINVESTMENTANALYSISa 40. Nomatterhowmanyformsofinvestmentanalysisyoudo: a. theactualresultsfromaprojectmayvarysignificantlyfromtheexpectedresults. b. theinternalrateofreturnwillalwaysproducethemostreliableresults. c. aprojectwillneverbeacceptedunlessthepaybackperiodismet. d. theinitialcostswillgenerallyvaryconsiderablyfromtheestimatedcosts. e. onlythefirstthreeyearsofaprojecteveraffectitsfinaloutcome. Difficultylevel:EasyINVESTMENTANALYSISb 41. Whichofthefollowingmethodsofprojectanalysisarebiasedtowardsshort-term projects? I. internalrateofreturn II. accountingrateofreturn III. payback IV. discountedpayback a. IandIIonly b. IIIandIVonly c. IIandIIIonly d. IandIVonly e. IIandIVonly Difficultylevel:MediumINVESTMENTANALYSISa 42. Ifaprojectisassignedarequiredrateofreturnequaltozero,then: a. thetimingoftheproject’scashflowshasnobearingonthevalueoftheproject. b. theprojectwillalwaysbeaccepted. c. theprojectwillalwaysberejected. d. whethertheprojectisacceptedorrejectedwilldependonthetimingofthecashflows. e. theprojectcanneveraddvaluefortheshareholders. Difficultylevel:MediumDECISIONRULESe 43. Youareconsideringaprojectwiththefollowingdata: Internalrateofreturn 8.7percent Profitabilityratio .98 Netpresentvalue -$393 Paybackperiod 2.44years Requiredreturn 9.5percent Whichoneofthefollowingiscorrectgiventhisinformation? a. Thediscountrateusedincomputingthenetpresentvaluemusthavebeenlessthan8.7 percent. b. Thediscountedpaybackperiodwillhavetobelessthan2.44years. c. Thediscountrateusedtocomputetheprofitabilityratiowasequaltotheinternalrate ofreturn. d. Thisprojectshouldbeacceptedbasedontheprofitabilityratio. e. Thisprojectshouldberejectedbasedontheinternalrateofreturn. Difficultylevel:MediumNETPRESENTVALUEc 44. AcceptingpositiveNPVprojectsbenefitsthestockholdersbecause: a. itisthemosteasilyunderstoodvaluationprocess. b. thepresentvalueoftheexpectedcashflowsareequaltothecost. c. thepresentvalueoftheexpectedcashflowsaregreaterthanthecost. d. itisthemosteasilycalculated. e. Noneoftheabove. Difficultylevel:EasyNETPRESENTVALUEa 45. WhichofthefollowingdoesnotcharacterizeNPV? a. NPVdoesnotincorporateriskintotheanalysis. b. NPVincorporatesallrelevantinformation. c. NPVusesalloftheproject'scashflows. d. NPVdiscountsallfuturecashflows. e. UsingNPVwillleadtodecisionsthatmaximizeshareholderwealth. Difficultylevel:EasyPAYBACKe 46. Thepaybackperiodrule: a. discountscashflows. b. ignoresinitialcost. c. alwaysusesallpossiblecashflowsinitscalculation. d. BothAandC. e. Noneoftheabove. Difficultylevel:EasyPAYBACKc 47. Thepaybackperiodruleacceptsallinvestmentprojectsinwhichthepaybackperiodforthecashflowsis: a. equaltothecutoffpoint. b. greaterthanthecutoffpoint. c. lessthanthecutoffpoint. d. positive. e. Noneoftheabove. Difficultylevel:EasyPAYBACKd 48. Thepaybackperiodruleisaconvenientandusefultoolbecause: a. itprovidesaquickestimateofhowrapidlytheinitialinvestmentwillberecouped. b. resultsofashortpaybackruledecisionwillbequicklyseen. c. itdoesnottakeintoaccounttimevalueofmoney. d. Alloftheabove. e. Noneoftheabove. Difficultylevel:EasyDISCOUNTEDPAYBACKa 49. Thediscountedpaybackperiodrule: a. considersthetimevalueofmoney. b. discountsthecutoffpoint. c. ignoresuncertaincashflows. d. ispreferredtotheNPVrule. e. Noneoftheabove. Difficultylevel:EasyPAYBACKc 50. Thepaybackperiodrule: a. determinesacutoffpointsothatallprojectsacceptedbytheNPVrulewillbeacceptedbythepaybackperiodrule. b. determinesacutoffpointsothatdepreciationisjustequaltopositivecashflowsinthepaybackyear. c. requiresanarbitrarychoiceofacutoffpoint. d. variesthecutoffpointwiththeinterestrate. e. BothAandD. Difficultylevel:EasyAVERAGEACCOUNTINGRETURNc 51. Theaverageaccountingreturnisdeterminedby: a. dividingtheyearlycashflowsbytheinvestment. b. dividingtheaveragecashflowsbytheinvestment. c. dividingtheaveragenetincomebytheaverageinvestment. d. dividingtheaveragenetincomebytheinitialinvestment. e. dividingthenetincomebythecashflow. Difficultylevel:EasyAVERAGEACCOUNTINGRETURNb 52. Theinvestmentdecisionrulethatrelatesaveragenetincometoaverageinvestmentisthe: a. discountedcashflowmethod. b. averageaccountingreturnmethod. c. averagepaybackmethod. d. averageprofitabilityindex. e. Noneoftheabove. Difficultylevel:EasyMODIFIEDINTERNALRATEOFRETURNd 53. Modifiedinternalrateofreturn: a. handlesthemultipleIRRproblembycombiningcashflowsuntilonlyonechangeinsignchangeremains. b. requirestheuseofadiscountrate. c. doesnotrequiretheuseofadiscountrate. d. BothAandB. e. BothAandC. Difficultylevel:MediumAVERAGEACCOUNTINGRETURNd 54. Theshortcoming(s)oftheaverageaccountingreturn(AAR)methodis(are): a. theuseofnetincomeinsteadofcashflows. b. thepatternofincomeflowshasnoimpactontheAAR. c. thereisnoclear-cutdecisionrule. d. Alloftheabove. e. Noneoftheabove. Difficultylevel:MediumINTERNALRATEOFRETURNe 55. Thetwofatalflawsoftheinternalrateofreturnruleare: a. arbitrarydeterminationofadiscountrateandfailuretoconsiderinitialexpenditures. b. arbitrarydeterminationofadiscountrateandfailuretocorrectlyanalyzemutuallyexclusiveinvestmentprojects. c. arbitrarydeterminationofadiscountrateandthemultiplerateofreturnproblem. d. failuretoconsiderinitialexpendituresandfailuretocorrectlyanalyzemutuallyexclusiveinvestmentprojects. e. failuretocorrectlyanalyzemutuallyexclusiveinvestmentprojectsandthemultiplerateofreturnproblem. Difficultylevel:MediumMUTUALLYEXCLUSIVEPROJECTSd 56. Amutuallyexclusiveprojectisaprojectwhose: a. acceptanceorrejectionhasnoeffectonotherprojects. b. NPVisalwaysnegative. c. IRRisalwaysnegative. d. acceptanceorrejectionaffectsotherprojects. e. cashflowpatternexhibitsmorethanonesignchange. Difficultylevel:EasyINTERNALRATEOFRETURNd 57. AprojectwillhavemorethanoneIRRif: a. theIRRispositive. b. theIRRisnegative. c. theNPViszero. d. thecashflowpatternexhibitsmorethanonesignchange. e. thecashflowpatternexhibitsexactlyonesignchange. Difficultylevel:EasyINTERNALRATEOFRETURNRULESb 58. Usinginternalrateofreturn,aconventionalprojectshouldbeacceptediftheinternalrateofreturnis: a. equaltothediscountrate. b. greaterthanthediscountrate. c. lessthanthediscountrate. d. negative. e. positive. Difficultylevel:EasyINTERNALRATEOFRETURNa 59.Theinternalrateofreturnmaybedefinedas: a. thediscountratethatmakestheNPVcashflowsequaltozero. b. thedifferencebetweenthemarketrateofinterestandtheNPV. c. themarketrateofinterestlesstherisk-freerate. d. theprojectacceptanceratesetbymanagement. e. Noneoftheabove. Difficultylevel:MediumMULTIPLEINTERNALRATEOFRETURNSd 60.TheproblemofmultipleIRRscanoccurwhen: a. thereisonlyonesignchangeinthecashflows. b. thefirstcashflowisalwayspositive. c. thecashflowsdeclineoverthelifeoftheproject. d. thereismorethanonesignchangeinthecashflows. e. Noneoftheabove. Difficultylevel:EasyTIMINGANDSCALEISSUESWITHINTERNALRATEOFRETURNb 61. TheelementsthatcauseproblemswiththeuseoftheIRRinprojectsthataremutuallyexclusiveare: a. thediscountrateandscaleproblems. b. timingandscaleproblems. c. thediscountrateandtimingproblems. d. scaleandreversingflowproblems. e. timingandreversingflowproblems. Difficultylevel:MediumNETPRESENTVALUEDECISIONc 62.IfthereisaconflictbetweenmutuallyexclusiveprojectsduetotheIRR,oneshould: a. dropthetwoprojectsimmediately. b. spendmoremoneyongatheringinformation. c. dependontheNPVasitwillalwaysprovidethemostvalue. d. dependontheAARbecauseitdoesnotsufferfromthesesameproblems. e. Noneoftheabove. Difficultylevel:MediumPROFITABILITYINDEXe 63.Theprofitabilityindexistheratioof: a. averagenetincometoaverageinvestment. b. internalrateofreturntocurrentmarketinterestrate. c. netpresentvalueofcashflowstointernalrateofreturn. d. netpresentvalueofcashflowstoaverageaccountingreturn. e. presentvalueofcashflowstoinitialinvestmentcost. Difficultylevel:EasyINVESTMENTDECISIONRULESa 64.Whichofthefollowingstatementistrue? a. OnemustknowthediscountratetocomputetheNPVofaprojectbutonecancomputetheIRRwithoutreferringtothediscountrate. b. OnemustknowthediscountratetocomputetheIRRofaprojectbutonecancomputetheNPVwithoutreferringtothediscountrate. c. Paybackaccountsfortimevalueofmoney. d. TherewillalwaysbeoneIRRregardlessofcashflows. e. Averageaccountingreturnistheratiooftotalassetstototalnetincome. Difficultylevel:MediumCAPITALBUDGETINGPRACTICEb 65.GrahamandHarvey()foundthat___and___werethetwomostpopularcapitalbudgetingmethods. a.