Reference no: EM132366178

Quiz 1 :

Question 1 : A situation in which accepting one investment prevents the acceptance of another investment is called the:

a. operational ambiguity decision
b. multiple rates of return decision
c. issues of scale problem
d. mutually exclusive investment decision
e. net present value profile

Question 2 : The primary reason that company projects with positive net present values are considered acceptable is that

a. the project's rate of return exceeds the rate of inflation
b. they create value for the owners of the firm
c. the investment's cost exceeds the present value of the cash inflows
d. the required cash inflows exceed the actual cash inflows
e. they return the initial cash outlay within three years or less

Question 3 : The length of time required for a project's discounted cash flows to equal the initial cost of the project is called the:

a. net present value
b. discounted payback period
c. payback period
d. discounted net present value
e. discounted profitability index

Question 4 : The present value of an investment's future cash flows divided by the initial cost of the investment is called the

a. profitability index
b. internal rate of return
c. net present value
d. profile period
e. average accounting return

Question 5 : An investment is acceptable if the payback period

a. is less than some pre-specified period of time
b. is equal to or greater than some pre-specified period of time
c. is equal to, and only if it is equal to, the investment’s life
d. is negative
e. exceeds the life of the investment

Quiz 2:

Question 1 : Changes in the net working capital:

a. affect the initial and the final cash flows of a project but not the cash flows of the middle years
b. are generally excluded from project analysis due to their irrelevance to the total project
c. are included in project analysis only if they represent cash outflows
d. only affect the initial cash flows of a project
e. can affect the cash flows of a project every year of the project's life

Question 2 : The equivalent annual cost method is useful in determining:

a. operating cash flows for cost-cutting projects of equal duration
b. the tax shield benefits of depreciation given the purchase of new assets for a project
c. the annual operating cost of a machine if the annual maintenance is performed versus when the maintenance is not performed as recommended
d. which one of two machines to purchase when the machines are mutually exclusive, have different machine lives, and will be replaced once they are worn out
e. which one of two machines to acquire given equal machine lives but unequal machine costs

Question 3 : You spent $500 last week fixing the transmission in your car. Now, the brakes are acting up and you are trying to decide whether to fix them or trade the car in for a newer model. In analyzing the brake situation, the $500 you spent fixing the transmission is a(n) _____ cost.

a. incremental
b. opportunity
c. fixed
d. sunk
e. relevant

Question 4 : Toni's Tools is comparing machines to determine which one to purchase. The machines sell for differing prices, have differing operating costs, differing machine lives, and will be replaced when worn out. These machines should be compared using:

a. both net present value and the internal rate of return
b. net present value only
c. their equivalent annual costs
d. the depreciation tax shield approach
e. Payback method

Question 5 : Sunk costs include any cost that:

a. has previously been incurred and cannot be included in the analysis in assessing the viability of an investment
b. will be incurred if a project is accepted
c. will occur if a project is accepted and once incurred, cannot be recouped
d. will change if a project is undertaken
e. will be paid to a third party and cannot be refunded for any reason whatsoever