Question

1. Which of the following statements is true about independent projects?

a.Independent projects are projects that, if accepted, have to accept one small project to assist other independent projects.

b.Independent projects are projects that, if accepted or rejected, do not affect the cash flows of other projects.

c.Independent projects are projects that, if accepted, have a negative effect on the company's profit.

d.Independent projects are projects that, if accepted or rejected, affect the net profit of other projects.

2. An investment is expected to produce annual cash flows of $1,500, $2,000, and $2,500. Assuming a discount rate of 12%, the present value of this series of cash flows is _____. (Round your answer to two decimal places.)

Period	1	2	3
12%	0.89286	0.79719	0.71178

a.$4,713.12

b.$3,118.72

c.$3,373.83

d.$2,933.67

3. A(n) _____ is a follow-up analysis of a capital project once it is implemented.

a.preaudit

b.proxy audit

c.implemented audit

d.postaudit

4. Papaya Inc. intends to invest in one of two fruit juice manufacturing plants, Plant A and Plant B. The life of Plant A and Plant B models is 12 years. Plant A requires an initial investment of $940,000 and has a net annual after-tax cash inflow of $200,000. Plant B requires an initial investment of $1,540,000 and has a net annual after-tax cash inflow of $240,000. The cost of capital for the company is 12%. Which of the following opinions is true regarding the two plants? (Discount factor for i = 12%. It is 6.19437 for 12 years.) (Round your answer to two decimal places.)

a.Papaya Inc. should select Plant B because the NPV of Plant B is higher than that of Plant A.

b.Papaya Inc. should select Plant A because the NPV of Plant A is lower than that of Plant B.

c.Papaya Inc. should select Plant B because the NPV of Plant B is lower than that of Plant A.

d.Papaya Inc. should select Plant A because the NPV of Plant A is higher than that of Plant B.

5. In which of the following ways does a postaudit help to improve managerial decision making?

a.It supplies feedback to managers to improve future decision making.

b.It corrects the estimated benefits and costs of a project.

c.It provides information that helps management in choosing among various mutually exclusive projects.

d.It assists management in deciding whether a project should be selected or not.

6. Which of the following statements is a limitation of the net present value (NPV) model while making a capital investment decision?

a.The NPV model ignores the time value of money while making a capital investment decision.

b.The NPV method measures profitability in relative terms, and in the final analysis, what counts are the total dollars earned—the absolute profit— not the relative profits.

c.The NPV model allows firms to use a higher discount rate than its cost of capital because of uncertain future cash flows.

d.The NPV model assumes that each cash inflow received is reinvested at the internal rate of return, which is not a realistic assumption.

7. Carriage Inc., a steel manufacturing company, is planning to buy a new plant. The internal rate of return provided by the new plant is 6%. The cost of capital for Carriage Inc. is 8%. Based on the given scenario, which of the following statements is true in the context of internal rate of return?

a.Carriage Inc. should invest in the new plant because the project will earn more than zero IRR from the project.

b.Carriage Inc. should not invest in the new plant because the IRR of the project is less than its cost of capital.

c.Carriage Inc. should not invest in the new plant because IRR is not a reliable model for making capital investment decisions.

d.Carriage Inc. should invest in the new plant because IRR is the true or actual simple rate of return that is earned by the initial investment.

8. Which of the following statements is true about the internal rate of return (IRR)?

a.If the IRR is less than the required rate of return, the firm is indifferent between accepting or rejecting the investment proposal.

b.If the IRR is greater than the required rate of return, the firm is indifferent between accepting or rejecting the investment proposal.

c.If the IRR is greater than the required rate, the project is deemed acceptable.

d.If the IRR is less than the required rate of return, the project is deemed acceptable.

9. Daphne Inc., a steel manufacturing company, is planning to buy a new plant at $1,100,000. The life of the plant is estimated to be 5 years and has cash flows of $110,000, $220,000, $330,000, $440,000, and $550,000. Calculate the payback period for the new plant.

a.5 years

b.4 years

c.2 years

d.3 years

Answer 1

as per HomeworkLib policy please find below the answer of first 4 question for rest of question please raise new request..

ans 1	Correct answer is option -
	b.Independent projects are projects that, if accepted or rejected, do not affect the cash flows of other projects.
ans 2	Correct answer is option -
	Computation of NPV
	i	ii	iii	iv=ii*iii
	year	Cash flow	PVIF @ 12%	present value
	1	1500	0.89286	1339.29
	2	2000	0.79719	1594.38
	3	2500	0.71178	1779.45
				4713.12
	therefore answer =		option a)	4713.12
ans 3	Correct answer is option -
	d.postaudit
ans 4
	NPV of A =		200000*6.19437-940000			298874
	NPV of B =		240000*6.19437-1,540,000			-53351.2
	Correct answer is option : d.Papaya Inc. should select Plant A because the NPV of Plant A is higher than that of Plant B.