FIN 301: Exam 2

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

a target average accounting return

According to the average accounting return rule, a project is acceptable if its average accounting return exceeds:

reject a project if the IRR is less than the required return

According to the basic IRR rule, we should _____.

not considered in the analysis

One of the flaws of the payback period method is that cash flows after the cutoff date are ___.

-Loss of simplicity as compared to the payback method -Exclusion of some cash flows -Arbitrary cutoff date

The discounted payback period has which of these weaknesses?

=NPV()

The spreadsheet function for calculating net present value is

Discounted payback period

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

Captial

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

ignored

One of the main disadvantages of the discounted payback period rule is that the cutoff is arbitrarily set and cash flows beyond that point are

-Is easy to compute. -Needed information is usually available.

Which of the following are advantage(s) of AAR?

Net present value

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