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Chapter Six The Analysis of Investment Projects This chapter contains 41 multiple choice problems, 20 short problems and 8 longer problems. Multiple Choice The objective of a firms management is to only undertake the projects that ________ the market value of shareholders equity. decrease do not decrease change do not change Answer: (b) The decision rule that management uses with the net present value is to undertake only those projects with ________ NPV. a discounted a contingent a positive negative Answer: (c) If a firm decides to invest in automated machines that will allow the firm to reduce labor costs, this is an example of a ________ capital expenditures project. new products replacement of existing assets cost reduction advertising Answer: (c) The NPV of a project represents the amount by which it is expected to increase ________. the break-even point capital budgeting capital expenditures shareholder wealth Answer: (d)  Consider the following annual cash flows: Year Cash Flows (in thousands of dollars) 0 –2,000 1 1,200 2 1,500 3 1,800 Using a cost of capital of 15%, compute this projects NPV. $5,361,000 $3,548,000 $3,361,000 $1,361,000 Answer: (d) Consider the following annual cash flows: Year Cash Flows (in thousands of dollars) 0 –5,000 1 4,100 2 3,800 3 3,500 Using a cost of capital of 12%, compute this projects NPV. $14,181,000 $9,181,000 $4,181,000 $3,548,000 Answer: (c) A negative sign in front of a cash-flow forecast for a particular year means that it is an ________. inflow outflow indeterminate flow more information is required to make this determination Answer: (b) Net cash inflows from operations can be computed in which of the following ways? Cash Flow = Revenue – Cash Expenses – Taxes Cash Flow = Net Income + Noncash Expenses Cash Flow = Revenue – Total Expenses – Taxes + Noncash Expenses all of