Investment Criteria Quiz

Which of the following investment rules does not use the time value of the money concept?

• Net present value

• Internal rate of return

• The payback period

• All of the above use the time value concept

Suppose a firm has a $100 million in excess cash. It could:

• Invest the funds in projects with positive NPVs

• Pay high dividends to the shareholders

• Buy another firm

• All of the above

The following are measures used by firms when making capital budgeting decisions except:

• Payback period

• Internal rate of return

• P/E ratio

• Net present value

The survey of CFOs indicates that NPV method is always, or almost always, used for evaluating investment projects by:

• 12% of firms

• 20% of firms

• 57% of firms

• 75% of firms

The survey of CFOs indicates that IRR method is used for evaluating investment projects by:

• 12% of firms

• 20% of firms

• 76% of firms

• 57% of firms

Which of the following investment rules has value adding-up property?

• The payback period method

• Net present value method

• The book rate of return method

• The internal rate of return method

If the net present value (NPV) of project A is + $100, and that of project B is + $60, then the net present value of the combined project is:

• +$100

• +$60

• +$160

• None of the above

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

• +$30

• -$60

• -$30

• None of the above.

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?

• Accept the firm's joint project as it has a positive NPV

• Reject the joint project

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

• None of the above

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?

• +$100

• -$40

• +$70

• +$120