1. Which of the following is required to compute the NPV of a project?
a. Cost of the project
b. Life of the project
c. Required rate of return
d. All of these choices are correct.
2. Net present value is calculated by:
a. (Present value of project's future cash inflows) - (Present value of the project's cost)
b. (Present value of the project's cost) - (Present value of project's future cash inflows)
c. (Present value of the project) - (Required return on the investment)
d. (Present value of the project's future cash inflows) - (Present value of the project's cost) + (Required return)
3. When should the decision of accepting a project be taken?
a. Only if the net present value of the project is positive.
b. Only if the net present value of the project is negative.
c. Only if the net present value of the project is neither positive nor negative.
d. Both "Only if the net present value of the project is positive" and "Only if the net present value of the project is neither positive nor negative" are correct.
4. The built-in function in Microsoft Excel PV (________) returns a present value for the cash inflows equal to $57,559.70.
a. (12%, 6, 14000)
b. (12%, -6, 14000)
c. (-12%, 6, 14000)
d. (12%, 6, -14000)
5. Which of the following capital investment evaluation methods do NOT use present values?
a. Net present value method
b. Internal rate of return method
c. Average rate of return method
d. None of these choices are correct.
6. A common characteristic found in capital investment evaluation methods that use present values is
a. no interest rate.
b. an interest rate.
c. their ease of use.
d. None of these choices are correct.
7. Assume that management is evaluating the purchase of a new machine as follows:
• Cost of new machine: $800,000
• Residual value: $0
• Estimated total income from machine: $300,000
• Expected useful life: 5 years
8. The average rate of return on this asset would be
a. 15%.
b. 14%.
c. 13%.
d. None of these choices are correct.
9. Which of the following is NOT an advantage to using the average rate of return method?
a. It is easy to compute.
b. It includes the entire amount of income earned over the life of the proposal.
c. It emphasizes accounting income, which is often used by investors and creditors in evaluating management performance.
d. It directly considers the expected cash flows from the proposal.
10. Which of the following is NOT an advantage to using the net present value method of evaluating an investment proposal?
a. It considers the cash flows of the investment.
b. It considers the time value of money.
c. It can rank projects with equal lives, using the present value index.
d. It assumes cash flows can be reinvested at the minimum desired rate of return.
11. The present value index is computed as the
a. total present value of net cash flow divided by amount to be invested.
b. cost divided by amount to be invested.
c. total future value of net cash flows divided by amount to be invested.
d. None of these choices are correct.
12. A method of evaluating an investment proposal that uses present value concepts to compute the rate of return based on the investment's expected net cash flows is called the
a. net present value method.
b. internal rate of return method (IRR).
c. payback period method.
d. None of these choices are correct.
13. A general increase in price levels is known as
a. inflation.
b. deflation.
c. stagflation.
d. None of these choices are correct.
14. Qualitative considerations that may influence capital investment analysis include the investment proposal's impact on all of the following except
a. product quality.
b. manufacturing flexibility.
c. employee morale.
d. income taxes.
15. The process by which management allocates funds among competing capital investment proposals is called
a. competitive analysis.
b. fund analysis.
c. capital rationing.
d. None of these choices are correct.
16. With capital rationing, alternative proposals are initially screened by establishing minimum standards and applying which of the following methods?
a. Cash payback and net present value methods
b. Net present value and internal rate of return methods
c. Cash payback and average rate of return methods
d. Net present value and average rate of return methods
17. According to the video, how many hotels and casinos does Hard Rock International operate?
a. 2
b. 7
c. 11
d. 14
18. In which state is Hard Rock International's theme park located?
a. Texas
b. South Carolina
c. Florida
d. California
19. How much does Hard Rock estimate its costs for the "audio/visual and performance systems" in a typical new cafe?
a. $75,000
b. $175,000
c. $400,000
d. $4,000,000
20. How long is the "worst case" payback period for the proposed cafe discussed in the video?
a. 3.9 years
b. 4.9 years
c. 5.9 years
d. 6.9 years