Financial Management Test

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Take Home Chapter 8-9
Student: ____________________________________________________________

1. The difference between an investment 's market value and its cost is called the:
A. present value.
B. net present value.
C. capital value.
D. cash flow.
E. net income. 2. The payback period is the period of time it takes an investment to generate sufficient cash flows to:
A. earn the required rate of return.
B. produce the required net income.
C. produce a yield equal to or greater than the market rate on similar investments.
D. have a cash inflow, rather than an outflow, for the year.
E. recover the investment 's initial cost. 3. The discount rate that causes the net present value of a project to equal
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is equal to or greater than 1.0. 16. Which one of the following is specifically designed to compute the rate of return on a project that has unconventional cash flows?
A. average accounting return
B. profitability index
C. internal rate of return
D. indexed rate of return
E. modified internal rate of return 17. When evaluating two mutually exclusive investments, the best method to use is the:
A. internal rate of return.
B. profitability index.
C. net present value.
D. modified internal rate of return.
E. average accounting return. 18. If the managers of COA only invest in projects that have a profitability index greater than 1.0, then:
A. COA should increase in value.
B. COA will most likely decrease in value.
C. the value of COA 's stock should remain constant.
D. the required rate of return should decrease.
E. the required rate of return should increase. 19. The profitability index reflects the value created per dollar:
A. invested.
B. of sales.
C. of net income.
D. of taxable income.
E. of equity. 20. Which two methods of investment analysis are generally used the most by CFOs?
A. payback and NPV
B. payback and IRR
C. NPV and IRR
D. NPV and PI
E. PI and IRR 21. What is the net present value of a project with the following cash flows if the discount rate is 15 percent?

A. -$2,989.48
B. -$2,599.55
C. $1,153.37
D. $2,880.08
E. $3,312.09 22. What is the net present value of a project that has an
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