FIN 571 TUTOR Imagine Your Future /fin571tutor.com FIN 571 TUTOR Imagine Your Future /fin571tutor.co | Page 78

1.The difference between the present value of an investment’s future cash
flows and its initial cost is the:
payback period.
internal rate of return.
profitability index.
discounted payback period.
net present value.
2.Which statement concerning the net present value (NPV) of an
investment or a financing project is correct?
An investment project that has positive cash flows for every time period
after the initial investment should be accepted.
Any type of project should be accepted if the NPV is positive and rejected if
it is negative.
A financing project should be accepted if, and only if, the NPV is exactly
equal to zero.
Any type of project with greater total cash inflows than total cash outflows,
should always be accepted.
An investment project should be accepted only if the NPV is equal to the
initial cash flow.
3.The primary reason that company projects with positive net present
values are considered acceptable is that:
they create value for the owners of the firm.
the investment's cost exceeds the present value of the cash inflows.
the project's rate of return exceeds the rate of inflation.
the required cash inflows exceed the actual cash inflows.
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.