FIN 571 Connect

Problems
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FIN 571 Week 5 Connect Problems -

1.The difference between the present value of an

investment?s future cash ows and its initial
cost is the:
net present value.
internal rate of return.
payback period.
protability index.
discounted payback period
1 Which statement concerning the net present
value (NPV) of an investment or a nancing
project is correct?
A nancing project should be accepted if, and
only if, the NPV is exactly equal to zero.
An investment project should be accepted only if
the NPV is equal to the initial cash ow.
Any type of project should be accepted if the
NPV is positive and rejected if it is negative.

 Any type of project with greater total cash

inows than total cash outows, should always
be accepted.
An investment project that has positive cash
ows for every time period after the initial
investment should be accepted.
1 The primary reason that company projects
with positive net present values are
considered acceptable is that:
they create value for the owners of the rm.
the project's rate of return exceeds the rate of
ination.
they return the initial cash outlay within three
years or less.
the required cash inows exceed the actual cash
inows.
the investment's cost exceeds the present value
of the cash inows.

1 Accepting a positive net present value (NPV)

project:
indicates the project will pay back within the
required period of time.
means the present value of the expected cash
ows is equal to the projects cost.
ignores the inherent risks within the project.
guarantees all cash ow assumptions will be
realized.
is expected to increase the stockholders value
by the amount of the NPV.
1 The net present value method of capital
budgeting analysis does all of the following
except:
incorporate risk into the analysis.
consider all relevant cash ow information.
use all of a project's cash ows.
discount all future cash ows.

 provide a specic anticipated rate of return.

1 What is the net present value of a project
with an initial cost of $36,900 and cash
inows of $13,400, $21,600, and $10,000 for
Years 1 to 3, respectively? The discount rate
is 13 percent.
$287.22
$1,195.12
$1,350.49
$204.36
$797.22

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