All of the following statements regarding NPV are true EXCEPT: a. A positive NPV indicates the present value of the cash flows exceeds the initial investment. b. A negative NPV indicates the present value of the cash flows is less than the initial investment. c. An NPV equal to zero indicates the present value of the cash flows is equal to the initial investment. d. The internal rate of return is the discount rate that causes the initial investment to exceed the present value of the cash flows.

All of the following statements regarding NPV are true EXCEPT: a. A positive NPV indicates the present value of the cash flows exceeds the initial investment. b. A negative NPV indicates the present value of the cash flows is less than the initial investment. c. An NPV equal to zero indicates the present value of the cash flows is equal to the initial investment. d. The internal rate of return is the discount rate that causes the initial investment to exceed the present value of the cash flows.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 16MC: When using the NPV method for a particular investment decision, if the present value of all cash...

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The internal rate of return is: the discount rate that equates the present value of the cash inflows with the present value of the cash outflows. the discount rate that makes NPV negative and the PI greater than one. the rate of return that makes the NPV positive. the discount rate that makes the NPV positive.
An increase in the discount rate will____ a. Reduce the present value of future cash flows b. Increase the present value of future cash flows c. Have no effect on net present value d. Compensate for reduced risk
If cashflows are discounted at____ the net present value is zero a. Internal rate of return O b. Wighted average cost of capital O c. Higher payback period O d. Any payback period
An increase in the discount rate will______ O a. Reduce the present value of future cash flows O b. Increase the present value of future cash flows c.Have no effect on net present value Od. Compensate for reduced risk
Which of the following statements is true? Multiple Choice When NPV is 0, the IRR is equal to the discount rate. When NPV is 0, the investment is not making a profit. In calculating IRR, we make the assumption all cash flows are reinvested at the discount rate. NPV is a good measure to use when comparing investments of different sizes.
The net present value: is equal to the initial investment when the internal rate of return is equal to the required return. is unaffected by the timing of an investment's cash flows. ignores cash flows that are distant in the future. decreases as the required rate of return increases.
An investment is guaranteed to have a unique value of IRR if which of the following is true? a. Alternating positive and negative cash flows b. An initial negative cash flow followed by all positive cash flows and the sum of the positive cash flows is greater than the magnitude of the negative cash flow c. A unique value for ERR d. A positive PW at MARR.
When using the NPV method for a particular investsment decision, if the present value of all cash inflows is greater than the present value of all cash outflows, then ________. Group of answer choices A. the discount rate used was too high B. the investment provides an actual rate of return greater than the discount rate C. the investment provides an actual rate of return equal to the discount rate D. the discount rate is too low
If the sum of the incremental cash flows is negative, what is known about the rate of return on the incremental investment?
When npv is negative, the discount rate is greater than the actual return on investment. A. True B. False
To find NPV, it requires Choices: A.none of the choices B.discount rate and estimated cash flows C.investment amount plus discount rate D.discount rate and inflation rate E.estimated cash flow and capital structure
Consider the calculation of an external rate of return (ERR). The positive cash flows in the cash flow profile are moved forward to t = n using what value of i in the (F|P,i,n–t) factors? a. 0 b. The unknown value of ERR (i′) c. MARR d. IRR.