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BUSN 379 Week 8 Final Exam

BUSN 379 Week 8 Final Exam

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1. (TCO 4) Which of the following is true regarding the evaluation of projects? (Points : 4)
sunk costs should be included

erosion effects should be considered

financing costs need to be included

opportunity costs are irrelevant 

Question 2. 2. (TCO 4) Which of the following investment ranking methods does not consider the time value of money? (Points : 4)
net present value method

payback method

internal rate of return method

all of these are time-adjusted methods 

Question 3. 3. (TCO 3 and 4) You can ensure that an investment is expected to create value for (Points : 4)
have a PI equal to zero.

produce negative rates of return.

have positive AARs.

have positive IRRs.

have positive NPVs.

Question 4. 4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 10 percent?
Year
0
1
2
3
4
Cash flow
-$32,000
$9,000
$10,000
$15,200
$7,800
(Points : 4)
$1,085.25

$1,193.77

$3,498.28

$4,102.86

$4,513.15

Question 5. 5. (TCO 4) Howard Company is considering a new project that will require an initial cash investment of $575,000. The project will produce no cash flows for the first three years. The projected cash flows for years 4 through 8 are $73,000, $112,000, $124,000, $136,000, and $145,000, respectively. How long will it take the firm to recover its initial investment in this project? (Points : 4)
5.81 years

6.05 years

6.96 years

7.90 years

This project never pays back

Question 6. 6. (TCO 4) The postponement of a project until conditions are more favorable:(Points : 4)
is a valuable option.

is referred to as the option to extend.

could not cause a negative net present value project to become a positive net present value project.

will generally cause the internal rate of return for a project to decline.

Question 7. 7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project under any circumstances. (Points : 4)
contingency planning.

hard rationing.

soft rationing.

capital constraint.

scenario analysis.


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