Question
MULTIPLE CHOICE
QUESTIONS1. The net present value of an investment represents
the difference between the investment’s:
A. cash inflows and outflows.
B. cost and its net profit.
C. cost and its market value.
D. cash flows and its profits.
E. assets and liabilities.
According to the textbook, section 8.1, the difference
between an investment’s market value and its cost is called the net
present value of the investment, that is why the answer is C.
2. Which one of the following statements is correct? The
Internal rate of return (IRR) is the discount rate that makes the
net present value of an investment zero while the required return
is an expected return you need in order to make an investment. At
this point, the project’s cash flows are equal to the project cost.
3. The internal rate of return is unreliable as an indicator
of whether or not an investment should be accepted given which one
of the following?
When two investments are mutually exclusive, then taking one
of them also means we cannot take the other. Thus, the internal
rate of return (IRR) is unreliable as an indicator concerning
mutually exclusive investment decisions.
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