FIN 571 Course Great Wisdom / tutorialrank.com FIN 571 Course Great Wisdom / tutorialrank.com | Page 48

they return the initial cash outlay within three years or less.

4.Accepting a positive net present value (NPV) project:
indicates the project will pay back within the required period of time.
is expected to increase the stockholders’ value by the amount of the
NPV.
ignores the inherent risks within the project.
guarantees all cash flow assumptions will be realized.
means the present value of the expected cash flows is equal to the
project’s cost.

5.The net present value method of capital budgeting analysis does all
of the following except:
use all of a project's cash flows.
discount all future cash flows.
consider all relevant cash flow information.
incorporate risk into the analysis.
provide a specific anticipated rate of return.

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