FIN 571 NERD Education Specialist /fin571nerd.com FIN 571 NERD Education Specialist /fin571nerd.com | Page 13

company projects with positive net present values are considered
acceptable is that: they return the initial cash outlay within three years
or less. the investment's cost exceeds the present value of the cash
inflows. they create value for the owners of the firm. the project's rate
of return exceeds the rate of inflation. the required cash inflows
exceed the actual cash inflows. 40.fitability index of an investment
project is the ratio of the: net present value of the project’s cash
outflows divided by the net present value of its inflows. net present
value of every project cash flow to the initial cost. present value of the
Time 1 and subsequent cash flows to the initial cost. internal rate of
return to the current market rate of interest. average net income to the
average investment. 41.No matter how many forms of investment
analysis you employ: the internal rate of return will always produce
the most reliable results. only the first three years of a project ever
affect its final outcome. the actual results from a project may vary
significantly from the expected results. the initial costs will generally
vary considerably from the estimated costs. a project will never be
accepted unless the payback period is met. 42.Wilson’s Market is
considering two mutually exclusive projects that will not be repeated.
The required rate of return is 13.9 percent for Project A and 12.5
percent for Project B. Project A has an initial cost of $54,500, and
should produce cash inflows of $16,400, $28,900, and $31,700 for
Years 1 to 3, respectively. Project B has an initial cost of $69,400, and
should produce cash inflows of $0, $48,300, and $42,100, for Years 1
to 3, respectively. Which project, or projects, if either, should be
accepted and why? Project B; because it has the largest total cash
inflow Project A; because its NPV is positive while Project B’s NPV
is negative Project B; because it has a negative NPV which indicates
acceptance neither project; because neither has an NPV equal to or
greater than its initial cost Project A; because it has the higher
required rate of return 43.Flatte Restaurant is considering the
purchase of a $11,000 soufflé maker. The soufflé maker has an
economic life of four years and will be fully depreciated by the
straight-line method. The machine will produce 2,500 soufflés per
year, with each costing $2.90 to make and priced at $5.75. Assume
that the discount rate is 16 percent and the tax rate is 34 percent. What
is the NPV of the project? (Do not round intermediate calculations