Question

1. The time value of money refers to the fact that money has an opportunity cost, i.e., its reinvestment rate.

a. True

b. False

2. If the payback period is used as the criterion for assigning priorities to investment projects, the highest priority will be assigned to projects with the shortest payback period.

a. True

b. False

3. The _______________ is the discount rate that makes the present value of the benefits generated by a project equal to the investment.

a. Net Present Value

b. Internal Rate of Return

c. Profitability Index

d. Cost-Benefit Analysis

4. The ________________ is the difference between the present value of the benefits discounted at the required return (or cost of capital) and the investment.

a. Net Present Value

b. Internal Rate of Return

c. Profitability Index

d. Cost-Benefit Analysis

5. A project is ____________ with another if acceptance of one, rules out acceptance of the other.

a. Dependent

b. Mutually exclusive

c. All of the above

d. None of the above

6. A ____________ project depends on the acceptance of another project before it can be accepted.

a. Dependent

b. Mutually exclusive

c. All of the above

d. None of the above

7. The internal rate of return method implies that intermediate cash flows are reinvested at the internal rate of return.

a. True

b. False

8. An investment of $1,000 today will return $2,000 at the end of 10 years. What is its internal rate of return?

a. 7.18%

b. 10%

c. 3.4%

d. None of the above

9. Two mutually exclusive projects have projected cash flows as follows:

		End of year
	0	1	2	3	4
Project A	-$2000	$1000	$1000	$1000	$1000
Project B	-$2000	0	0	0	6000

The Internal Rate of Return for Project A is:

a. 31.61%

b. 37.6%

c. 34.9%

d. None of the above

10. Two mutually exclusive projects have projected cash flows as follows:

		END	OF	YEAR
	0	1	2	3	4
Project A	-$2000	$1000	$1000	$1000	$1000
Project B	-$2000	0	0	0	6000

The Net Present Value for Project A at a discount rate of 20% is:

a. $589

b. $1170

c. $2000

d. None of the above