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Net Present Value

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Submitted By waanaboos
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Chapter 09

1. A project has an initial cost of $27,400 and a market value of $32,600. What is the difference between these two values called?
A. net present value
B. internal return
C. payback value
D. profitability index
E. discounted payback The length of time a firm must wait to recoup the money it has invested in a project is called the:
A. internal return period.
B. payback period.
C. profitability period.
D. discounted cash period.
E. valuation period. The internal rate of return is defined as the:
A. maximum rate of return a firm expects to earn on a project.
B. rate of return a project will generate if the project in financed solely with internal funds.
C. discount rate that equates the net cash inflows of a project to zero.
D. discount rate which causes the net present value of a project to equal zero.
E. discount rate that causes the profitability index for a project to equal zero. Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project?
A. reduction in the cash outflow at time zero
B. cash inflow in the final year of the project
C. cash inflow for the year following the final year of the project
D. cash inflow prorated over the life of the project
E. not included in the net present value The internal rate of return is:
A. the discount rate that makes the net present value of a project equal to the initial cash outlay.
B. equivalent to the discount rate that makes the net present value equal to one.
C. tedious to compute without the use of either a financial calculator or a computer.
D. highly dependent upon the current interest rates offered in the marketplace.
E. a better methodology than net

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