Chapter 05Net Present Value and Other Investment Rules Multiple Choice Questions 1. The difference between the present value of an investment and its cost is the: A. net present value.B. internal rate of return.C. payback period.D. profitability index.E. discounted payback period. 2. Which one of the following statements concerning net present value (NPV) is correct? A. An investment should be accepted if, and only if, the NPV is exactly equal to zero.B. An investment should be accepted only if the NPV is equal to the initial cash flow.C. An investment should be accepted if the NPV is positive and rejected if it is negative.D. An investment with greater cash inflows than cash outflows, regardless of when the cash flows occur, will always have a positive NPV and therefore should always be accepted.E. Any project that has positive cash flows for every time period after the initial investment should be accepted. 3. The length of time required for an investment to generate cash flows sufficient to recover the initial cost of the investment is called the: A. net present value.B. internal rate of return.C. payback period.D. profitability index.E. discounted cash period. 4. Which one of the following statements is correct concerning the payback period? A. An investment is acceptable if its calculated payback period is less than some pre-specified period of time.B. An investment should be accepted if the payback is positive and rejected if it is negative.C. An investment should be rejected if the payback is positive and accepted if it is negative.D. An investment is acceptable if its calculated payback period is greater than some pre-specified period of time.E. An investment should be accepted any ti...
