Question 1

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 2

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

Accepted Answer

The correct syntax for the IRR function is =IRR(values,[guess]), where "values" represents the range of cash flows and "guess" is an optional argument that represents an estimate of the IRR.

Question 3

IRR stands for the ____.

Accepted Answer

IRR stands for internal rate of return, which is a financial metric used to measure the profitability or potential return on an investment. It calculates the discount rate at which the present value of all future cash flows from the investment equals the initial investment or cost.

Question 4

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 5

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

Accepted Answer

The rate of return can be referred to as both the hurdle rate and discount rate depending on the context in which it's used. The hurdle rate refers to the minimum rate of return required by an investor or organization before they consider investing in a project, while the discount rate is used to calculate the present value of future cash flows. Therefore, both options are correct.

Question 6

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

Accepted Answer

An XY Scatter chart is the best chart to show a functional relationship between two variables, such as hurdle rate versus NPV. It allows for the plotting of data points and displaying trends or correlations between the variables. An X plot is not a commonly recognized chart type, a Y plot is only suitable for displaying single-variable data, and a pie chart is better for showing proportions of a whole rather than a relationship between two variables.

Question 7

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

The answer of Stockholders often look at the ____ as...

Question 8

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

Accepted Answer

The function will round the tax rate multiplied by C16 to the nearest dollar.

Question 9

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

Accepted Answer

The method that calculates the rate at which discounted cash flows in and out are equal is the internal rate of return (IRR). Choice A is correct. Choice B (NPV) is not correct, as NPV calculates the present value of cash inflows and outflows and is not specifically focused on the rate of return. Choice C is not incorrect, as NPV can be used in conjunction with IRR for investment analysis, but it is not the best choice in this scenario. Choice D is not correct, as at least one of the options (A) is a valid answer.

Question 10

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 11

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 12

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

Accepted Answer

The IRR function calculates the internal rate of return based on a series of cash flows, which can include both negative and positive cash flows. Therefore, the values argument in the IRR function can be a list of both negative and positive cash flows (option C).

Question 13

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 14

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

Accepted Answer

NPV assumes that cash flow values occur at the end of each period, meaning at the end of each year or quarter, for example. This is because the present value of a cash flow is determined by discounting it back to the present at a specific interest rate, and the timing of the cash flow affects its present value.

Question 15

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

Accepted Answer

The answer of The ____ depreciation method calculates interest as...

Question 16

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

Accepted Answer

To apply a range name globally, we need to select the Scope box and set it to the desired value (e.g. Workbook) so that the range name can be used across all sheets in the workbook.

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

NPV (Net Present Value) is preferred by most financial theorists because it takes into account the expected cash flows and applies a minimum rate of return (usually the cost of capital) to discount these cash flows into current (present) value dollars. This allows for a more accurate evaluation of the potential profitability of an investment or project. EPS (Earnings Per Share) and EPP (Earnings Per Price) are measures of a company's profitability per outstanding share of stock, while IRR (Internal Rate of Return) is another method of evaluating the potential profitability of an investment, but it does not take into account the timing of cash flows.

Question 18

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 at both the beginning and end of the project, the results of the NPV and IRR can be contradictory. This is because NPV assumes that cash flows are reinvested at the discount rate, while IRR assumes that cash flows are reinvested at the internal rate of return. In situations where cash flows are negative at both the beginning and end of a project, these assumptions can lead to conflicting results between the two methods.

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

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.

Quiz 6: Evaluating the Financial Impact of Loans and Investments