1. Which of the following is NOT a discounted cash flow technique?
a. payback period b. internal rate of return c. net present value d. profitability index
2. Which of the following is NOT a flaw of the payback period method?
a. It ignores time value of money and risk.
b. It assumes that the early cash flows will be reinvested at a rate equal to the cost of capital. c. It discards some useful information. d. It uses a subjective cutoff point for decisions.
3. If project X and project Y are mutually exclusive, then the company manager is able to make all of the following decisions EXCEPT _____.
a. accept both X and Y b. accept X and reject Y c. reject X and accept Y d. reject both X and Y
4. A firm can create value for shareholders by _____.
a. accepting projects with short payback periods, thereby reducing risk b. accepting projects with an IRR that is greater than the required rate of return c. accepting all projects with positive IRRs d. accepting large projects over small ones
5. Which one of the following statements is correct?
a. The net present value is a measure of profits expressed in today's dollars.
b. The net present value is positive when the required return exceeds the internal rate of return. c. If the initial cost of a project is increased, the net present value of that project will also increase.
d. If the internal rate of return equals the required return, the net present value will equal zero.