Multiple choice | Accounting homework help

1.  If the NPV of project A is +$30 and that of project B is -$60, then the NPV of the combined 

project is:  

a. +$30 

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b. -$60 

c. -$30 

d. None of the above 


2.  You are given a job to make a decision on project X, which is composed of three independent projects A, B, and C which have NPVs of +$70, -$40 and +$100, respectively. How would you go about making the decision about whether to accept or reject the project?  

a. Accept the firm’s joint project as it has a positive NPV 

b. Reject the joint project 

c. Break up the project into its components: accept A and C and reject B 

d. None of the above 


3. If the NPV of project A is +$120, and that of project B is -$40 and that of project C is +$40,  what is the NPV of the combined project?  

a. +$100 

b. -$40 

c. +$70 

d. +$120 


4. The net present value of a project depends upon:  

a. Company’s choice of accounting method 

b. Manager’s tastes and preferences 

c. Project’s cash flows and opportunity cost of capital 

d. All of the above 


5. Which of the following investment rules may not use all possible cash flows in its 


a. NPV 

b. Payback period 

c. IRR 

d. All of the above 


6. The payback period rule:  

a. Varies the cut-off point with the interest rate 

b. Determines a cut-off point so that all projects accepted by the NPV rule will be accepted by the payback period rule 

c. Requires an arbitrary choice of a cut-off point 

d. Both A and C 


7. The payback period rule accepts all projects for which the payback period is:  

a. Greater than the cut-off value 

b. Less than the cut-off value 

c. Is positive 

d. An integer 


8. The main advantage of the payback rule is:  

a. Adjustment for uncertainty of early cash flows 

b. It is simple to use 

c. Does not discount cash flows 

d. Both A and C 


9. The following are disadvantages of using the payback rule except:  

a. The payback rule ignores all cash flow after the cutoff date 

b. The payback rule does not use the time value of money 

c. The payback period is easy to calculate and use 

d. The payback rule does not have the value additive property 


10. Which of the following statements regarding the discounted payback period rule is true?  

a. The discounted payback rule uses the time value of money concept 

b. The discounted payback rule is better than the NPV rule 

c. The discounted payback rule considers all cash flows 

d. The discounted payback rule exhibits the value additive property