Question 1

The syntax of the IRR function is as follows: ____.

Accepted Answer

The correct syntax for the IRR function is =IRR(values,[guess]). This function calculates the internal rate of return for a series of cash flows. The values argument includes the cash flows, and the guess argument is an optional guess at the rate of return.

Question 2

The ____ depreciation method calculates interest as highest in the first period and decreases in amount each period thereafter.

Accepted Answer

The double-declining balance method calculates depreciation as a percentage of the book value of the asset, which is the asset's cost minus the accumulated depreciation. The percentage used is twice the straight-line depreciation rate. This means that the depreciation expense is highest in the first period and decreases in amount each period thereafter.

Question 3

Stockholders often look at the ____ as a quick measure of how attractive a company's stock is versus other stocks within the industry.

Accepted Answer

ROI (Return on Investment) is a common metric used by stockholders to assess the attractiveness of a company's stock compared to others in the industry.

Question 4

In projects where cash flows are negative at both the beginning and the end of the project life, the results of the NPV and IRR are often ____.

Accepted Answer

When cash flows are negative both at the beginning and end of a project's life, the NPV and IRR can give contradictory results. This is because NPV assumes a reinvestment rate for future cash inflows, while IRR assumes reinvestment at the IRR. If the cash flows are negative at the beginning and end, the NPV assumes that the funds received from the project will be reinvested at a rate that is lower than the IRR. As a result, NPV may lead to rejecting the project while IRR may indicate accepting it. Therefore, the results of NPV and IRR can be contradictory in such situations.

Question 5

In the IRR function, the guess argument is optional and should not be needed, but can be used if the ____ iterations that are automatically performed by Excel do not result in an accurate value.

Accepted Answer

The IRR function in Excel automatically performs 20 iterations to try to converge to an accurate value. If it doesn't find a solution within these iterations, using the guess argument can help guide it to a solution.

Question 6

NPV requires that value1, value2, value3, and so on must be equally spaced in time and occur at ____.

Accepted Answer

NPV requires that cash flows must occur at the end of each period, regardless of whether the period is a month, a year, or any other timeframe. This allows for easy calculation of the present value of each cash flow and the sum of all present values, which is the net present value.

Question 7

The depreciation method where depreciation is apportioned based on a declining fractional amount of the asset's life is the ____ method.

Accepted Answer

The sum of the years' digits method of depreciation involves apportioning depreciation based on a declining fractional amount of the asset's life, where the fractions are determined by the sum of the years' digits of the asset's useful life.

Question 8

The rate of return is often referred to as the ____.

Accepted Answer

The rate of return can be referred to as both a hurdle rate and a discount rate. The hurdle rate is the minimum rate of return required by an investor or company, while the discount rate is used to calculate the present value of future cash flows. Therefore, both terms are used to refer to the rate of return.

Question 9

Which of the following is true of range names?

Accepted Answer

Range names in Excel are not case sensitive, cannot exceed 255 characters, and cannot contain blank spaces.

Question 10

When using NPV, ____ are ignored.

Accepted Answer

NPV calculates the present value of future cash flows, and therefore, it only considers numerical values associated with these cash flows. Text values and error messages are not relevant to the calculation and are ignored.

Question 11

The best chart to show a functional relationship, such as hurdle rate versus NPV, is ____.

Accepted Answer

An XY Scatter chart is the best choice to show a functional relationship between two variables, such as hurdle rate and NPV. This type of chart plots the data points on a Cartesian coordinate system, with one variable on the X-axis and the other variable on the Y-axis. This allows for a clear visualization of the relationship between the two variables, as well as any patterns or trends that may exist in the data. In contrast, an X plot or Y plot would only show one variable at a time, while a pie chart is used to show the composition of a whole and would not be useful for displaying a functional relationship.

Question 12

The function =-ROUND(Taxrate*C16,0) will round taxes to the nearest ____.

Accepted Answer

Rounding to the nearest dollar means that the tax amount will be rounded to the nearest whole number, which is in the unit of dollar.

Question 13

Using the NPV function, you can write a formula to determine the net present value of the income flows for a project, including the initial investment, as follows: ____.

Accepted Answer

The correct formula to determine the net present value (NPV) of income flows for a project, including the initial investment, is to subtract the initial investment from the NPV of the income flows. This is because the initial investment is a cash outflow and should be subtracted from the present value of cash inflows to get the net present value.

Question 14

The depreciation method with the formula =DB(cost,salvage,life,period,[month]) is the ____ method.

Accepted Answer

The answer of The depreciation method with the formula =DB(cost,salvage,life,period,[month])...

Question 15

To apply a range name globally, make sure that Workbook is selected as the ____ box.

Accepted Answer

The scope of a range name determines where it can be used within a workbook. By selecting Workbook as the scope, the range name can be used globally, meaning in any worksheet within the workbook.

Question 16

The ____ method calculates the rate at which discounted cash flows in and out are equal.

Accepted Answer

The statement describes the Internal Rate of Return (IRR) method. This method is used to find the discount rate that makes the present value of cash inflows equal to the present value of cash outflows. Option B) NPV (Net Present Value) calculates the difference between the present value of cash inflows and outflows. Hence, option C) is incorrect. Therefore, the correct choice is A) IRR.

Question 17

____ is preferred by most financial theorists because it uses the expected cash flows and applies a minimum rate of return to discount these cash flows into current (present) value dollars.

Accepted Answer

Net Present Value (NPV) is preferred by most financial theorists because it is based on the expected cash flows and applies a minimum cost of capital (rate of return) to discount these cash flows into current (present) value dollars. This method takes into account both time value of money and risk, resulting in a more accurate assessment of the project's profitability. EPS, EPP, and IRR do not take into account the time value of money or risk, and thus are not as accurate as NPV in assessing a project's profitability.

Question 18

IRR stands for the ____.

Accepted Answer

IRR stands for internal rate of return, which is a financial metric used to evaluate the attractiveness of potential investments. It is the discount rate at which the net present value of an investment's expected cash flows equals zero.

Question 19

When using the NPV function in Excel, the first cash flow into or out of the financial transaction is assumed to be ____.

Accepted Answer

The NPV function in Excel assumes that the first cash flow occurs one year from the start of the investment, which is why the first cash flow is not included in the NPV function's range of values and must be added separately to the NPV result.

Question 20

In the IRR function, the values argument is a list of ____.

Accepted Answer

The IRR (Internal Rate of Return) function is used to calculate the rate at which the net present value (NPV) of a series of cash flows equals zero. These cash flows can be both positive and negative, which means that the values argument in the IRR function can include both types of cash flows. Therefore, choice C - "both a and b" - is the correct answer.

Quiz 6: Evaluating the Financial Impact of Loans and Investments