ACC 544 Quiz 3 “� Question 1 Which of the following statements about investment decision models is true? “� Question 2 Which of the following events would decrease the internal rate of return of a proposed asset purchase? “� Question 3 Which of the following is a disadvantage of the internal rate of return as a method of evaluating investments? “� Question 4 Net present value (NPV) and internal rate of return (IRR) differ in that “� Question 5 Which of the following characteristics represent an advantage of the internal rate of return technique over the accounting rate of return technique in evaluating a project? “� Question 6 It is assumed that cash flows are reinvested at the rate earned by the investment in which of the following capital budgeting techniques? “� Question 7 Which of the following changes would result in the highest present value? “� Question 8 Which of the following is an advantage of net present value modeling? “� Question 9 The Bread Company is planning to purchase a new machine which it will depreciate on a straight-line basis over a 10-year period. A full year’s depreciation will be taken in the year of acquisition. The machine is expected to produce cash flow from operations, net of income taxes, of $3,000 in each of the 10 years.; The accounting (book value) rate of return is expected to be 10% on the initial increase in required investment. The cost of the new machine will be “� Question 10 Net present value as used in investment decision-making is stated in terms of which of the following options? “� Question 11 On January 1, 2012, Colt Company issued 10-year bonds with a face amount of $1,000,000 and a stated interest rate of 8% payable annually on January 1. The bonds were priced to yield 10%. Present value factors are as follows: “� Question 12 Assume that management of Trayco has generated the following data about an investment project that has a five-year life: “� Question 13 Assume that management of Trayco has generated the following data about an investment project that has a five-year life: “� Question 14 Which of the following statements is correct regarding payback method as a capital budgeting technique? “� Question 15 A client wants to know how many years it will take before the accumulated cash flows from an investment exceed the initial investment, without taking the time value of money into account. Which of the following financial models should be used? “� Question 16 Which of the following limitations is common to the calculations of payback period, discounted cash flow, internal rate of return, and net present value? “� Question 17 A project has an initial outlay of $1,000. The projected cash inflows are “� Question 18 Harvey Co. is evaluating a capital investment proposal for a new machine. The investment proposal shows the following information: “� Question 19 How are the following used in the calculation of the net present value of a proposed project? Ignore income tax considerations. “� Question 20 In considering the payback period for three projects, Fly Corp. gathered the following data about cash flows: “� Question 21 The discount rate (hurdle rate of return) must be determined in advance for the “� Question 22 Which of the following statements is correct regarding financial decision making? “� Question 23 Which of the following is necessary in order to calculate the payback period for a project? “� Question 24 An efficient portfolio is one that “� Question 25 Which of the following scenarios would encourage a company to use short-term loans to retire its ten-year bonds that have five years until maturity? “� Question 26 What is the formula for calculating the profitability index of a project? “� Question 27 The profitability index is a variation on which of the following capital budgeting models? “� Question 28 Assume that management of Trayco has generated the following data about an investment project that has a five-year life: “� Question 29 A company purchases an item for $43,000. The salvage value of the item is $3,000. The cost of capital is 8%. Pertinent information related to this purchase is as follows: “� Question 30 A project has a present value of future net cash inflows of $120,000 and an initial investment of $110,000. Calculate the excess present value index for the project.
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