WILL LINCOLN ACCEPT THE PROJECT?

14 May WILL LINCOLN ACCEPT THE PROJECT?

Lincoln Industries Inc. is considering a project that has an
initial after-tax outlay or after-tax cost of $350,000. The respective future
cash inflows from its five-year project for years 1 through 5 are $75,000 each
year. Lincoln expects an additional cash flow of $50,000 in the fifth year. The
firm uses the net present value method and has a discount rate of 10%. Will
Lincoln accept the project?

A. Lincoln accepts
the project because it has an NPV greater than $5,000.

B. Lincoln rejects
the project because it has an NPV less than $0.

C. Lincoln accepts
the project because it has an NPV greater than $18,000.

D. There is not
enough information to make a decision.

Question 11 of 20

5.0/ 5.0 Points

Which of the statements below is true of the payback period
method?

A. It ignores the
cash flow after the initial outflow has been recovered.

B. It is biased
against projects with early term payouts.

C. It incorporates
time-value-of-money principles.

D. It focuses on
cash flows after the initial outflow has been recovered.

Question 12 of 20

5.0/ 5.0 Points

The capital budgeting decision model that utilizes all the
discounted cash flow of a project is the __________ model, which is one of the
single most important models in finance.

A. net present value
(NPV)

B. internal rate of
return (IRR)

C. profitability
index (PI)

D. discounted
payback period

Question 13 of 20

5.0/ 5.0 Points

There are two ways to correct for projects with unequal
lives when using the NPV approach. Which of the answers below is one of these
ways?

A. One way is to
find a common life, without the need to extend the projects to the least common
multiple of their lives.

B. One way is to
find the present value factors and then compare them.

C. One way is to
compare the lengths of the projects and take the project with the shortest
life.

D. One way is to
find a common life by extending the projects to the least common multiple of
their lives.

Question 14 of 20

5.0/ 5.0 Points

Flynn, Inc. is considering a four-year project that has an
initial outlay or cost of $80,000. The future cash inflows from its project are
$40,000, $40,000, $30,000, and $30,000 for years 1, 2, 3, and 4, respectively.
Flynn uses the internal rate of return method to evaluate projects. What is the
approximate IRR for this project?

A. The IRR is less
than 12%.

B. The IRR is
between 12% and 20%.

C. The IRR is about
24.55%.

D. The IRR is about
28.89%.

Question 15 of 20

5.0/ 5.0 Points

The IRR is the discount rate that produces a zero NPV or the
specific discount rate at which the present value of the cost equals:

A. the future value
of the present cash outflows.

B. the present value
of the future benefits or cash inflows.

C. the present value
of the cash outflow.

D. the investment.

Question 16 of 20

5.0/ 5.0 Points

__________ is at the heart of corporate finance, because it
is concerned with making the best choices about project selection.

A. Capital budgeting

B. Capital structure

C. Payback period

D. Short-term
budgeting

Question 17 of 20

5.0/ 5.0 Points

The __________ model determines at what point in time cash
outflow is recovered by the corresponding future cash inflow.

A. NPV

B. Buyback

C. Net Present Value

D. Payback Period

Question 18 of 20

5.0/ 5.0 Points

Which of the statements below describes the IRR decision
criterion?

A. The decision
criterion is to accept a project if the IRR falls below the desired or required
return rate.

B. The decision
criterion is to reject a project if the IRR exceeds the desired or required
return rate.

C. The decision
criterion is to accept a project if the IRR exceeds the desired or required
return rate.

D. The decision
criterion is to accept a project if the NPV is positive.

Question 19 of 20

5.0/ 5.0 Points

Acme, Inc. is considering a four-year project that has an
initial outlay or cost of $100,000. The respective future cash inflows from its
project for years 1, 2, 3, and 4 are: $50,000, $40,000, $30,000 and $20,000.
Will it accept the project if its payback period is 31 months?

A. Yes, because it
pays back in 25 months.

B. Yes, because it
pays back in 28 months.

C. No, because it
pays back in over 31 months.

D. No, because it
pays back in over 35 months.

Question 20 of 20

5.0/ 5.0 Points

Which of the statements below is FALSE?

A. The NPV decision
criterion is true when all projects are independent and the company has a
sufficient source of funds to accept all positive NPV projects.

B. Two projects are
mutually exclusive if the accepting of one project has no bearing on the
accepting or rejecting of the other project.

C. Projects are
mutually exclusive if picking one project eliminates the ability to pick the
other project.

D. If a company has
constrained capital, then it can only take on a limited number of projects.