Financial Management - Study Mode

[#961] If net present value is positive then profitability index will be
Correct Answer

(D) greater than one

Explanation

Solution: If net present value is positive then profitability index will be greater than one. A positive net present value indicates that the projected earnings generated by a project or investment - in present dollars - exceeds the anticipated costs, also in present dollars. It is assumed that an investment with a positive NPV will be profitable, and an investment with a negative NPV will result in a net loss.

[#962] Cash flows occurring with more than one change in sign of cash flow are classified as
Correct Answer

(A) non-normal cash flow

Explanation

Solution: Cash flows occurring with more than one change in sign of cash flow are classified as non-normal cash flow. Non-normal cash flow stream (also called unconventional cash flow) is a pattern of cash flows in which the direction of cash flows changes more than once.

[#963] First step in calculation of net present value is to find out
Correct Answer

(C) present value cash flow

Explanation

Solution: First step in calculation of net present value is to find out present value cash flow. Present value (PV) is the current value of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows.

[#964] Situation in which one project is accepted while rejecting another project in comparison is classified as
Correct Answer

(B) mutually exclusive

Explanation

Solution: Situation in which one project is accepted while rejecting another project in comparison is classified as mutually exclusive. Mutually inclusive means the events cannot occur independently. For example, if I'm deciding which dress to wear to an event, that's a mutually exclusive decision.

[#965] Sum of discounted cash flows is best defined as
Correct Answer

(C) project net present value

Explanation

Solution: Sum of discounted cash flows is best defined as project net present value. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.