1. A profitability index (PI) of .92 for a project means that __________. a the project's costs (cash outlay) are (is) less than the present value of the project's benefits b the project's NPV is greater than zero c the project's NPV is greater than 1 d the project returns 92 cents in present value for each current dollar invested (cost) 2. The victoria Corporation is considering an investment that will cost $80,000 and have a useful life of 4 years. During the first 2 years, the net incremental after-tax cash flows are $25,000 per year and for the last two years they are $20,000 per year. What is the payback period for this investment? a 3.2 years. b 3.5 Years c 4.0 Years d Cannot be determined from this information. 3. A recent project whose acceptance does not prevent or require the acceptance of one or more alternative projects is referred to as __________. a a mutually exclusive project b an independent project c a dependent project d a contingent project 4. Which of the following statements is correct regarding the internal rate of return (IRR) method? a Each project has a unique internal rate of return. b As long as you are not dealing with mutually exclusive projects, capital rationing, or unusual projects having multiple sign changes in the cash-flow stream, the internal rate of return method can be used with reasonable confidence. c The internal rate of return does not consider the time value of money. d The internal rate of return is rarely used by firms today because of the ease at which net present value is calculated. 5. A project has the following cash inflows $34,444; $39,877; $25,000; and $52,800 for years 1 through 4, respectively. The initial cash outflow is $104,000. Which of the following four statements is correct concerning the project internal rate of return (IRR)? a The IRR is less than 10%. b The IRR is greater than or equal to 10%, but less than 14%. c The IRR is greater than or equal to 14%, but less than 18%. d The IRR is greater than or equal to 18%. 6. What is the market value of a $1,000 face-value bond with a 10 percent coupon rate when the market's rate of return is 9 percent? a More than its face value. b Less than its face value. c $1,000.00 d $980.00 7. When the market's required rate of return for a particular bond is less than its coupon rate, the bond is referred to as a __________. a premium bond b discount bond c par bond d face bond 8. If the intrinsic value of a share of common stock is less than its market value, which of the following is the most reasonable conclusion? a The stock has a low level of risk. b The stock offers a high dividend payout ratio. c The market is undervaluing the stock. d The market is overvaluing the stock. 9. __________ is the variability of return on stocks or portfolios associated with changes in return on the market as a whole. a Systematic risk b Standard deviation c Unsystematic risk d Coefficient of variation 10. Stock beta over 1 indicates which of the following ? a The security's price is theoretically more volatile than the market. b The security's price is theoretically less volatile than the market. c Stock price is positively correlated with the market d Stock price is negatively correlated with the market