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Alternative Project Quiz
A profitability index (PI) of .92 for a project means that __________.
the project's costs (cash outlay) are (is) less than the present value of the project's benefits
the project's NPV is greater than zero
the project's NPV is greater than 1
the project returns 92 cents in present value for each current dollar invested (cost)
Which of the following statements is incorrect regarding a normal project?
If the NPV of a project is greater than 0, then its PI will exceed 1.
If the IRR of a project is 8%, its NPV, using a discount rate, k, greater than 8%, will be less than 0.
If the PI of a project equals 0, then the project's initial cash outflow equals the PV of its cash flows.
If the IRR of a project is greater than the discount rate, k, then its PI will be greater than 1.
What do we call a formal comparison of the actual costs and benefits of a project with original estimates?
Post-completion audit.
Feedback audit.
Cost-benefit analysis.
Business scorecard report.c
A project whose acceptance does not prevent or require the acceptance of one or more alternative projects is referred to as __________.
a mutually exclusive project
an independent project
a dependent project
a contingent project
When operating under a single-period capital-rationing constraint, you may first want to try selecting projects by descending order of their __________ in order to give yourself the best chance to select the mix of projects that adds most to firm value.
profitability index (PI)
net present value (NPV)
internal rate of return (IRR)
payback period (PBP)
Which of the following statements is correct regarding the internal rate of return (IRR) method?
Each project has a unique internal rate of return.
As long as you are not dealing with mutually exclusive projects, capital rationing, or unusual projects having multiple sign changes in the cash-flow stream, the internal rate of return method can be used with reasonable confidence.
The internal rate of return does not consider the time value of money.
The internal rate of return is rarely used by firms today because of the ease at which net present value is calculated.
The discount rate associated with the single intersection of the NPV profiles of two mutually exclusive projects represents __________.
Fisher's rate of intersection
the rate at which the projects have identical profitability indexes
the rate at which the projects have identical profitability indexes
the minimum acceptable rate of return for each project
An NPV profile for a single project __________.
displays Fisher's rate of intersection
is generally upward sloping
displays the expected NPV for a project at a variety of different discount rates
None of the above answers are
A project whose acceptance precludes the acceptance of one or more alternative projects is referred to as __________.
a mutually exclusive project.
an independent project.
a dependent project.
a contingent project.
A project whose acceptance requires the acceptance of one or more alternative projects is referred to as __________.
a mutually exclusive project
an independent project
a dependent project
None of the above
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