QUESTION 1
1. A project requires a net investment of $450,000. It has a profitability index of 1.25 based on the firm's
12% cost of capital. Determine the net present value of the project.
a. $1,012,500
b. $140,625
c. $562,500
d. $112,500
1 points
QUESTION 2
1. According to the profitability index criterion, a project is acceptable if its profitability index is greater
than ____.
a. 1.1
b. or equal to 1
c. 1 plus the cost of capital
d. 0
1 points
QUESTION 3
1. An investment project requires a net investment of $100,000 and is expected to generate annual net cash
inflows of $25,000 for 6 years. The firm's cost of capital is 12%. Determine the profitability index for this
project.
a. 0.028
b. 1.028
c. 1.50
d. 0.972
1 points
QUESTION 4
1. An investment project requires a net investment of $100,000. The project is expected to generate annual
net cash inflows of $28,000 for the next 5 years. The firm's cost of capital is 12%. Determine the payback
period for the project.
a. 0.28 years
b. 17.86 years
c. 1.4 years
d. 3.57 years
1 points
QUESTION 5
1. An investment project requires a net investment of $100,000. The project is expected to generate annual
net cash inflows of $28,000 for the next 5 years. The firm's cost of capital is 12%. Determine the net
present value for the project.
a. $40,000
b. $77,884
c. $940
d. $100,940
1 points
QUESTION 6
1. Calculate the net present value for an investment project with the following cash flows using a 12% cost
of capital:
Year
0
Net Cash Flow –$100,000
a. $56,560
b.
$30,000
c.
$13,840
d.
Cannot be determined with
information given
1
$80,000
2
$80,000
3
-$30,000
1 points
QUESTION 7
1. Calculate the profitability index for a project that has a net present value equal to –$10,000. The
project's net investment is $20,000, and the firm has a 40 percent marginal tax rate.
a. –0.5
b. 0
c. 0.8
d. None of these are correct
1 points
QUESTION 8
1. An investment project requires a net investment of $100,000. The project is expected to generate annual
net cash inflows of $28,000 for the next 5 years. The firm's cost of capital is 12%. Determine the internal
rate of return for the project (to the nearest tenth of one percent).
a. 12.4%
b. 12.6%
c. 3.6%
d. 12.0%
1 points
QUESTION 9
1. A project requires a net investment of $100,000. At the firm's cost of capital of 10%, the project's
profitability index is 1.15. Determine the net present value of the project.
a. $15,000
b. $215,000
c. $115,000
d. Cannot be determined