Using a payback period rule tends to bias investors toward

Select one:

a.riskier investments.

b.less risky investments.

c.longer-term investments.

d.shorter-term investments.

e.lower return investments.

Project Phoenix costs $1.25 million and yields annual cost savings of $300,000 for seven years. The assets involved in the project can be salvaged for $100,000 at the end of the project. Ignoring taxes, what is the payback period for Project Phoenix?

Select one:

a.4 years

b.4 years and 1.7 months

c.4 years and 2 months

d.4 years and 3 months

e.5 years

Fargo Inc. is considering a project that will require an initial investment of $1.5 million. The project will provide incremental cash inflows of $600,000 for the next five years. If the required return on the project is 15%, what is its discounted payback? If the company's investment cutoff threshold is three years, should the project be given the go-ahead?

Select one:

a.3 years and 4.55 months; yes

b.3 years and 4.55 months; no

c.4 years and 11.55 months; yes

d.4 years and 11.55 months; no

e.5 years and 1 month; no

A project will generate the following cash flows. If the required rate of return is 15%, what is the project's net present value?

Year

Cash flow

0

-$50,000

1

$15,000

2

$16,000

3

$17,000

4

$18,000

5

$19,000

Select one:

a.$16,790.47

b.$6,057.47

c.$3,460.47

d.$1,487.21

e.-$3,072.47

A project will generate the following cash flows. The required rate of return is 15%. If the profitability index is 1.7, what is the initial investment for this project?

Year

Cash flow

1

$15,000

2

$16,000

3

$17,000

4

$18,000

5

$19,000

Select one:

a.$26,217.06

b.$31,460.47

c.$32,974.98

d.$37,752.57

e.$95,297.70

Mr. Gallagher is considering replacing his five-year-old car with a new one. The new car will cost $30,000, taking into consideration the trade-in value of the old car. The new car will save Mr. Gallagher $5,000 per year in terms of gasoline, repairs, and maintenance. Mr. Gallagher plans to keep this new car for five years. At the end of five years, the car can be sold for $8,000. What is the internal rate of return on the new car?

Select one:

a.1.40%

b.2.80%

c.5.00%

d.8.14%

e.9.43%

A project will cost $20,000 today and yield cash inflows of $15,000 and $25,000 at the end of Year 1 and Year 2, respectively. At the end of Year 3, the project will require an additional clean-up cost of $5,000. The required rate of return for similar projects is 10%. What is the MIRR of this project if we use the discounting approach?

Select one:

a.61.80%

b.48.03%

c.38.90%

d.26.67%

e.24.32%

Which of the following is a disadvantage of the internal rate of return criterion?

Select one:

a.It is not a true rate of return.

b.It uses an arbitrary benchmark cutoff rate.

c.It ignores time value of money, cash flows, and market values.

d.It cannot be used to rank independent projects.

e.It may lead to incorrect decisions when comparing mutually exclusive investments.

Which of the following investment criteria are commonly used by Canadian firms in their capital budgeting decisions?

Select one:

a.net present value

b.internal rate of return

c.payback period

d.a and b only

e.a, b, and c

refers to the situation in which different units in a company are allocated fixed amounts of money each year for capital spending.

A.Capital rationing

B.Soft rationing

C.Hard rationing

D.Capital budgeting

E.Restricted budgeting