A company is analyzing a variety of potential investments using different capital budgeting methods. Which of the following represents the most profitable choice based on the information provided? - CORRECT ANSWER The company picks a project with profitability index of 1.25 over a project with a PI of -.25 A firm is trying to choose the most profitable project to invest in. Which of the following should be used as the company's discount rate? - CORRECT ANSWER The company's reinvestment rate or weighted average cost of capital. Calculate the discounted payback period for a project with a discount rate of 5% the following cash flows: Year 0: -$2000Year 1: $1000Year 2: -$1000Year 3: $1000Year 4: $3000Year 5: $2000 - CORRECT ANSWER 3.44 years. In which of the following situations would it be appropriate to use the IRR method to make an investment decision? - CORRECT ANSWER To compare two projects that have an equal initial investment and lifespan. The tax rate that applies to the last dollar of the tax base and is often applied to the change in one's tax obligation as income rises is called _____. - CORRECT ANSWER the marginal tax rate When evaluating the cash flows from a project, a financial manager needs to analyze the: - CORRECT ANSWER costs, benefits, and opportunity costs of the project. Which of the following describes an advantage the internal rate of return has over net present value for capital budgeting purposes? - CORRECT ANSWER Internal rate of return is an indicator of the efficiency, quality or yield of an investment. Which of the following is a correct definition of a capital budgeting method? - CORRECT ANSWER The internal rate of return is the discount rate that gives a net present value of zero. Which of the following is a way cash flow factors can be used to improve a business? - CORRECT ANSWER It can be used to .determine a project's rate of return or value, It can be used to evaluate the ""quality"" of income generated by accrual accounting, It can be used to determine problems with a business's liquidity. Which of the following is an element needed to calculate an asset's depreciation? - CORRECT ANSWER The cost of the asset minus the asset's salvage value, The estimated useful life of the asset, A method of apportioning the cost of the asset. You have an opportunity to invest $48,900 now in return for $61,200 in one year. If your cost of capital is 8.6%, what is the NPV of thisinvestment? - CORRECT ANSWER $7,453.59 You have an opportunity to invest $115,000 now in return for $81,200 in one year and $43,200 in two years. If your cost of capital is 9.6%, what is the NPV of this investment? - CORRECT ANSWER -$4,948.85 You run a construction firm. You have just won a contract to build a government office building. Building it will require an investment of $10.6 million today and $5.8 million in one year. The government will pay you $22.2 million in one year upon the building's completion. Suppose the interest rate is 11.3%. What is the NPV of this opportunity? - CORRECT ANSWER $4.14 million Marian Cebrian owns his own business and is considering an investment. If he undertakes the investment, it will pay $6,840 at the end of each of the next 3 years. The opportunity requires an initial investment of $1,710 plus an additional investment at the end of the second year of $8,550. What is the NPV of this opportunity if the interest rate is 2.6% per year? Should Marian take it? - CORRECT ANSWER The NPV is $9,665. Yes, he should take it