Question

14) In a before-tax analysis of a project, which of the following would not affect NPV? an increase a change in the estimated scrap value of an asset used solely in the project a change in the expected life of the project a change in the discount rate for the project money already spent on designs for the project in the working capital requirements for the project. a. b. c. d. e. 15) Which of the following ratios gives the best guide to a company's liquidity? a. Price/earnings ratio b. Earnings per share c. Return on capital employed d. Interest cover e. Quick ratio 12) Consider the following three projects. CO(E) C 4,000 -4,000 -4,000 C2() C3() 1,000 1,000 10,000 1,000 3,600 3,600 1,000 If the opportunity cost of capital is 10% and the net present value (NPV) rule is followed. which projects should be chosen? a) b) c) d) e) A only A and B A and C B and C A, B and C 15) The profitability index is the ratio of a) average net income to average net investment. b) internal rate of return to current market interest rate c) net present value of cash flows to internal rate of return. d) net present value of cash flows to present value of cash flows e) present value of cash flows to initial investment cost. 16) Which of the following ratios gives the best guide to a company's ability to service its borrowings? a) Price/earnings ratio b) Earnings per share c) Return on capital employed d) Interest cover e) Quick ratio

Answer 1

14) e - Money already spent on design for the project

15) e - Quick Ratio

12) c - A and C as the NPV is positive for both investment options

15) e - Present value of cash flows to initial investment cost

16) d - Interest cover