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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