ACCT ch 13

True or False: Preference decisions relate to whether a proposed project is acceptable based on preset criteria

false

two capital budgeting approaches that use discounted cash flows are the ____ value method and the ____ of return method

net present, internal rate

a screening decision:

relates to whether a proposed project in acceptable

The two bread categories into which capital budgeting decisions fall are _____ decisions and _____ preference decisions.

screening, preference

current assets minus liabilities is called:

working capital

the internal rate of return is the discount rate that results in a net present value of ____ for the investment.

zero.

capital budgeting decisions include:

-acquiring a new facility to increase capacity -purchasing new equipment to purchase among available alternatives -deciding to replace old equipment -choosing to lease or buy new equipment

the net present value of a project is:

-the difference between the present value of cash inflows and present value of cash outflows for a project -used in determining whether or not a project is an acceptable capital investment

which of the following are true regarding the time value of money? -given the same overall dollar return, a project that lasts 20 years is preferable to a project that lasts 5 years -by collecting a projects return quickly, the investor has the opportunity to re-invest that money to earn even more -one dollar today is worth less that one dollar a year from now -projects that provide earlier returns are preferable to those that promise later returns

2 and 4

An investor deposits $100 and earns $6 of interest in the first year and $6.36 of interest in the second year. This means the investment is earning 6% _____ interest.

Compound

When net cash inflow is the same every year, the equation used to calculate the factor of the internal rate of return is:

Investment required/annual net cash inflow

One dollar earned today is worth:

More than one dollar earned at a future point in time

the required rate of return is:

The minimum rate of return a project must yield to be acceptable

True or False: Walmart makes an investment when it opens a new store.

True

why must future cash flows relating to a capital investment be discounted when calculating the net present value of the investment?

because the time value of money, future cash flows must be discounted to be comparable to other cash flows

How managers plan significant investments in projects that have long term implications for purchasing new equipment or introducing new products is called:

capital builing