6. (TCO 4) Ignoring the option to expand: (Points : 4) overestimates the interna

Question

6. (TCO 4) Ignoring the option to expand: (Points : 4)
overestimates the internal rate of return on a project.
ignores the possibility that a negative net present value project might be positive, given changes over time.
ignores the possibility that one variable is the primary source of the forecasting risk associated with a project.
underestimates the net present value of a project.


7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project under any circumstances. (Points : 4)
contingency planning.
hard rationing.
soft rationing.
capital constraint.
scenario analysis.


8. (TCO 4) ABC Cameras is considering an investment that will have a cost of $10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%. Which of the following is true regarding this investment? (Points : 4)
The net present value of the project is approximately $10,000
This project should be accepted because it has a positive net present value
This project

Explanation / Answer

1) underestimates the net present value of a project. 2) hard rationing 3) This project should be accepted because it has a positive net present value(NPV = $1,014.3)

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