39 . The primary reason that 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