fin 3390 topic 2 part 1 quiz review

Question 1

_____________have the same function, so they compete against one another. The acceptance of one eliminates all other projects from consideration.

Answer 1

Mutually Exclusive Projects

Question 2

The acceptance or rejection of one does not directly eliminate other projects from consideration

Answer 2

Independent Projects

Question 3

A project with conventional cash flow pattern typically consists of an initial cash outflow followed by only a series of inflows.

Answer 3

Conventional Cash Flow Pattern

Question 4

A project with non-conventional cash flow pattern typically has an initial outflow followed by a series of inflows and outflows (more than one change of direction)

Answer 4

A non-conventional Cash Flow Pattern

Question 5

compares the cash outlay to the present value of the cash flows from the project.

Answer 5

Net present value (NPV)

Question 6

is the most theoretically correct method.

Answer 6

NPV

Question 7

IF NPV is greater than 0 you ________. less than 0 you ______.

Answer 7

accept;reject

Question 8

A _________ NPV means that the project is expected to add value to the firm and will therefore increase the wealth of the owners.

Answer 8

positive

Question 9

Measures the benefit per unit cost, based on the time value of money.
A profitability index of 1.1 implies that for every $1 of investment, we create an additional $0.10 in value
This measure can be very useful in situations in which we have limited capital