Required return 8.50 percent ________ 1. What is the net present value of the proposed project? ________ 2. What is the discounted payback period? ________ 3. Should the project be accepted based on the internal rate of return (IRR)? Why or why not? ________ 4. Should the proposed project be accepted based on the profitability index (PI)? Why or w
You are analyzing a proposed project and have compiled the following information:
Year Cash flow
0 -$135,000
1 $ 28,600
2 $ 65,500
3 $ 71,900
Required payback period 3 years
Required return 8.50 percent
________ 1. What is the
________ 2. What is the discounted payback period?
________ 3. Should the project be accepted based on the
________ 4. Should the proposed project be accepted based on the profitability index (PI)? Why or why not?
________ 5. Winslow, Inc. is considering opening a new plant to produce snow skis. The initial cost of the project is $1.8 million. This cost will be
The net income of the project is expected to be a loss of $250,000 a year for the first four years. The net income is projected at $50,000, $230,000, $390,000, $480,000, $750,000, and $800,000 for years 5 through 10, respectively. What is the average accounting return on this project?
_______ 6. You should accept a project when the:
- net present value is negative.
- profitability index is positive.
- payback period exceeds the required period.
- AAR is greater than the required return.
________ 7. Which one of the following statements is correct?
- The payback period is also referred to as the benefit-cost ratio.
- The internal rate of return can be reliably used for all independent projects.
- The profitability index is used when the investment funds are limited.
- The net present value should not be used to rank mutually exclusive projects.
________ 8. You should accept a project when the:
- net present value is negative.
- profitability index is less than 1 but greater than 0.
- discounted payback period is less than the required period.
- AAR is less than the required return.
________ 9. The crossover point:
- is used to determine which one of two internal
rates of return for a project should be used
when determining if a project should be accepted.
- is the point where the net present value of a project is equal to 0.
- equates the net present values of two separate projects.
- is the point in time when a project pays back on a discounted basis.
________ 10. Which one of the following statements is correct?
- The payback period of a project will be longer than the discounted payback period.
- The internal rate of return can be reliably used for all independent projects.
- The internal rate of return is used to evaluate different sized projects.
- The internal rate of return should not be used to rank mutually exclusive projects.
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