Reference no: EM132554036

Question 1. At points on the marginal cost curve between the average variable cost and the average total cost, the NPV of the firm is

a. Positive

b. Negative

Question 2. If the discount rate is greater than the _______, the decision rule says to reject the project.

a NPV

b PI

c IRR

d EAA

Question 3. Which of the following statements is most correct?

a. If a project's internal rate of return (IRR) exceeds the cost of capital, then the project's net present value (NPV) must be positive.

b. If Project A has a higher IRR then Project B, then Project A must also have a higher NPV than Project B.

c. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the cost of capital.

Question 4. Assuming that the total cash flows are equal, the NPV of a project whose cash flows accrue relatively rapidly is more sensitive to changes in the discount rate than is the NPV pf a project whose cash flows come in more slowly.

a. True

b. False

Question 5. Project A has an internal rate of return of 15%. Project B has an IRR of 14%. Both projects have a cost of capital of 12%. Which of the following statements is most correct?

a. Both projects have a positive net present value (NPV)

b. Project A must have a higher NPV than Project B.

c. If the cost of capital were less than 12%, Project B would have a higher IRR than Project A.

Question 6 . As a project's initial outlay increases, the profitability index will ______.

a. increase

b. decrease

c. stay the same

d. could either increase or decrease