Chapter 9 smart book

Select all that apply The basic NPV investment rule is:

accept a project if the NPV is greater than zero. reject a project if its NPV is less than zero. if the NPV is equal to zero, acceptance or rejection of the project is a matter of indifference

The spreadsheet NPV function actually calculates present value, not present value, as the name suggests.

net

The ____________ method differs from NPV because it evaluates a project by determining the time needed to recoup the initial investment.

payback

The payback period method allows lower management to make(smaller/larger), everyday financial decisions effectively.

smaller

Using the payback period rule will bias toward accepting which type of investment?

Short-term investment

A project should be __________ if its NPV is greater than zero.

accepted

The discounted payback is the time it takes to break even in an or financial sense.

economic

True or false: Opportunity costs can be ignored when determining the financial feasibility of a project.

false

The payback period can lead to incorrect decisions if it is used too literally because it ____.

ignores cash flows after the cutoff date

Net ______value is a measure of how much value is created or added today by undertaking an investment.

present

The spreadsheet function for calculating net present value is ____.

=NPV()

_____budgeting is the decision-making process for accepting and rejecting projects.

Capital

Arrange the steps involved in the discounted payback period in order starting with the first step.

Discount the cash flows using the discount rate. Add the discounted cash flows. Accept if the discounted payback period is less than some pre-specified number of years.

Which capital budgeting decision method finds the present value of each cash flow before calculating a payback period?

Discounted payback period

One of the weaknesses of the payback period is that the cutoff date is a(n) ______ standard.

arbitrary

This capital budgeting method allows lower management to make smaller, everyday financial decisions effectively.

Payback Method

Capital ______ is the decision-making process for accepting and rejecting projects.

budgeting

Which of the following is an example of an opportunity cost?

Rental income likely to be lost by using a vacant building for an upcoming project

Payback period tells the time it takes to break even in an ____ sense. Discounted payback period tells the time it takes to break even in an ______ or financial sense.

accounting; economic

Based on the ______payback rule, an investment is acceptable if its ________payback is less than some prespecified number of years.

discounted ,discounted

NPV ______ cash flows properly.

discounts

Select all that apply The three attributes of NPV are that it:

discounts the cash flows properly. uses cash flows. uses all the cash flows of a project.

Using your personal savings to invest in your business is considered to have an _____________because you are giving up the use of these funds for other investments or uses, such as a vacation or paying off a debt.

opportunity cost

By ignoring time value, the payback period rule may incorrectly accept projects with a (positive/negative) NPV.

negative

True or false: Based on the discounted payback rule, an investment is acceptable if its discounted payback is less than some prespecified number of years.

true