CHAPTER7NetPresentValueandOtherInvestmentRulesMultipleChoiceQuestions:I.DEFINITIONSNETPRESENTVALUEa1.Thedifferencebetweenthepresentvalueofaninvestmentanditscostisthe:a.netpresentvalue.b.internalrateofreturn.c.paybackperiod.d.profitabilityindex.e.discountedpaybackperiod.Difficultylevel:EasyNETPRESENTVALUERULEc2.Whichoneofthefollowingstatementsconcerningnetpresentvalue(NPV)iscorrect?a.Aninvestmentshouldbeacceptedif,andonlyif,theNPVisexactlyequaltozero.b.AninvestmentshouldbeacceptedonlyiftheNPVisequaltotheinitialcashflow.c.AninvestmentshouldbeacceptediftheNPVispositiveandrejectedifitisnegative.d.Aninvestmentwithgreatercashinflowsthancashoutflows,regardlessofwhenthecashflowsoccur,willalwayshaveapositiveNPVandthereforeshouldalwaysbeaccepted.e.Anyprojectthathaspositivecashflowsforeverytimeperiodaftertheinitialinvestmentshouldbeaccepted.Difficultylevel:EasyPAYBACKc3.Thelengthoftimerequiredforaninvestmenttogeneratecashflowssufficienttorecovertheinitialcostoftheinvestmentiscalledthe:a.netpresentvalue.b.internalrateofreturn.c.paybackperiod.d.profitabilityindex.e.discountedcashperiod.Difficultylevel:EasyPAYBACKRULEa4.Whichoneofthefollowingstatementsiscorrectconcerningthepaybackperiod?a.Aninvestmentisacceptableifitscalculatedpaybackperiodislessthansomepre-specifiedperiodoftime.b.Aninvestmentshouldbeacceptedifthepaybackispositiveandrejectedifitisnegative.c.Aninvestmentshouldberejectedifthepaybackispositiveandacceptedifitisnegative.d.Aninvestmentisacceptableifitscalculatedpaybackperiodisgreaterthansomepre-specifiedperiodoftime.e.Aninvestmentshouldbeacceptedanytimethepaybackperiodislessthanthediscountedpaybackperiod,givenapositivediscountrate.Difficultylevel:EasyDISCOUNTEDPAYBACKe5.Thelengthoftimerequiredforaproject’sdiscountedcashflowstoequaltheinitialcostoftheprojectiscalledthe:a.netpresentvalue.b.internalrateofreturn.c.paybackperiod.d.discountedprofitabilityindex.e.discountedpaybackperiod.Difficultylevel:EasyDISCOUNTEDPAYBACKRULEd6.Thediscountedpaybackrulestatesthatyoushouldacceptprojects:a.whichhaveadiscountedpaybackperiodthatisgreaterthansomepre-specifiedperiodoftime.b.ifthediscountedpaybackispositiveandrejectedifitisnegative.c.onlyifthediscountedpaybackperiodequalssomepre-specifiedperiodoftime.d.ifthediscountedpaybackperiodislessthansomepre-specifiedperiodoftime.e.onlyifthediscountedpaybackperiodisequaltozero.Difficultylevel:EasyAVERAGEACCOUNTINGRETURNc7.Aninvestment’saveragenetincomedividedbyitsaveragebookvaluedefinestheaverage:a.netpresentvalue.b.internalrateofreturn.c.accountingreturn.d.profitabilityindex.e.paybackperiod.Difficultylevel:EasyAVERAGEACCOUNTINGRETURNRULEb8.Aninvestmentisacceptableifitsaverageaccountingreturn(AAR):a.islessthanatargetAAR.b.exceedsatargetAAR.c.exceedsthefirm’sreturnonequity(ROE).d.islessthanthefirm’sreturnonassets(ROA).e.isequaltozeroandonlywhenitisequaltozero.Difficultylevel:EasyINTERNALRATEOFRETURNb.9.Thediscountratethatmakesthenetpresentvalueofaninvestmentexactlyequaltozeroiscalledthe:a.externalrateofreturn.b.internalrateofreturn.c.averageaccountingreturn.d.profitabilityindex.e.equalizer.Difficultylevel:EasyINTERNALRATEOFRETURNRULEd10.AninvestmentisacceptableifitsIRR:a.isexactlyequaltoitsnetpresentvalue(NPV).b.isexactlyequaltozero.c.islessthantherequiredreturn.d.exceedstherequiredreturn.e.isexactlyequalto100percent.Difficultylevel:EasyMULTIP...
