1. When comparing the payback method and the accounting rate of return methods, which of the following is true?

	Profitability		Time Value of Money
i	Ignored by both methods		Ignored by both methods
ii	Ignored by both methods		Used in accounting rate of return; ignored by payback method
iii	Considered by accounting method, not by payback		Ignored by both methods
iv	Considered by accounting method, not by payback		Considered by both methods

A)i B)iv C)ii D)iii

3.

The required rate of return used in the net present value model can also be called the

A)minimum acceptable rate of return B)hurdle rate C)discount rate D)all of these E)cost of capital

7.

How do NPV and IRR differ?

A)NPV measures profitability in absolute terms, whereas the IRR method measures profitability in relative terms. B)Both NPV and IRR will generate the same decisions. C)NPV considers the time value of money and IRR does not. D)IRR should be used for choosing among competing, mutually exclusive projects.

8.

Shoring Company is considering a project with an internal rate of return of 14.5 percent. Shoring requires a minimum rate of return of 12 percent. The net present value of the project is

A)infinite B)equal to zero C)negative D)none of these E)positive

10.

A company is considering two projects.

	Project I	Project II
Initial investment	$120,000	$120,000
Cash inflow Year 1	$40,000	$20,000
Cash inflow Year 2	$40,000	$20,000
Cash inflow Year 3	$40,000	$32,000
Cash inflow Year 4	$40,000	$48,000
Cash inflow Year 5	$40,000	$50,000

What is the payback period for Project I?

A)3.5 years B)5 years C)1 year D)2.5 years E)3 years

11.

A company is considering two projects.

	Project A	Project B
Initial investment	$200,000	$200,000
Cash inflow Year 1	$50,000	$90,000
Cash inflow Year 2	$50,000	$90,000
Cash inflow Year 3	$50,000	$40,000
Cash inflow Year 4	$50,000	$30,000
Cash inflow Year 5	$50,000	$30,000

What is the payback period for Project A?

A)3.5 years B)2.5 years C)4.5 year D)5 years E)4 years

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