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What is the best investment criteria

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Reference no: EM132555352

Question 1: What's the best investment criteria when dealing with mutually exclusive projects?

A. Payback period

B. Net present value (NPV)

C. Profitability index (PI)

D. Internal rate of return (IRR)

Question 2: The change in revenue that occurs when one more unit of output is sold is referred to as

A. scenario revenue.

B. total revenue.

C. average revenue.

D. marginal revenue.

Question 3: A project requires an initial investment of $1,000 and will pay only one payment of $1,160 in one year. Assuming a firm's required rate of return is 15 percent, should the firm accept the project according to the IRR rule? Why or why not?

A. The firm should be indifferent toward the decision.

B. There isn't enough information to determine if the project should be accepted or rejected.

C. Yes, the IRR is greater than the required rate of return.

D. No, the IRR is less than the required rate of return.

Question 4: PA Petroleum just purchased some equipment at a cost of $67,000. The equipment is classified as MACRS five-year property. The MACRS rates are .2, .32, .192, .1152, .1152, and .0576 for years one through six, respectively. What's the proper methodology for computing the depreciation expense for year two?

A. $67,000 × (1 - 0.32)

B. $67,000 × (1 - 0.20) ÷ 0.32

C. $67,000 × (1 + 0.32)

D. $67,000 × 0.32

Question 5: A disadvantage of the discounted payback period method when compared to NPV is that it

A. may reject economically viable projects (positive NPV projects).

B. is more difficult to understand.

C. may accept negative NPV projects.

D. completely ignores the time value of money.

Reference no: EM132555352

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