Finance Chapter 9 Smartbook Questions
false
T/F: The MIRR function eliminates multiple IRRs and should replace NPV.
a, c, d
The basic NPV investment rule is: Multiple select question. a. accept a project if the NPV is greater than zero. b. accept a project if the NPV is less than zero. c. reject a project if its NPV is less than zero. d. if the NPV is equal to zero, acceptance or rejection of the project is a matter of indifference e. accept a project if the discount rate is above zero.
a. not conventional
The IRR rule can lead to bad decisions when cash flows are _____ or projects are mutually exclusive. a. not conventional b. certain c. conventional
a. suggests accepting
The payback period rule ______ a project if it has a payback period that is less than or equal to a particular cutoff date. a. suggests accepting b. suggests rejecting
d. Payback method
This capital budgeting method allows lower management to make smaller, everyday financial decisions effectively. a. Net present value b. Average accounting return c. Internal rate of return d. Payback method
step 2
Which step involved in the discounted payback period is this? add the discounted cash flows
b. arbitrary
One of the weaknesses of the payback period is that the cutoff date is a(n) ______ standard. a. perfect b. arbitrary c. industry d. market
true
T/F: IRR approach may lead to incorrect decisions in comparison of two mutually exclusive projects.
a, d
The IRR rule can lead to bad decisions when _____ or _____. Multiple select question. a. projects are mutually exclusive b. NPV is positive c. payback period is less than two years. d. cash flows are not conventional
a. Short-term investment
Using the payback period rule will bias toward accepting which type of investment? a. Short-term investment b. Long-term investment
capital
___________ budgeting is the decision-making process for accepting and rejecting projects.
c. accepted
A project should be __________ if its NPV is greater than zero. a. delayed b. rejected c. accepted
c. budgeting
Capital ______ is the decision-making process for accepting and rejecting projects. a. spending b. relevance c. budgeting d. structure
a. present value
In capital budgeting, the net ______ determines the value of a project to the company. a. present value b. future value c. income d. sales
smaller
The payback period method allows lower management to make ________ (smaller/larger), everyday financial decisions effectively.
step 1
Which step involved in the discounted payback period is this? discount the cash flows using the discount rate
negative
By ignoring time value, the payback period rule may incorrectly accept projects with a ___________ (positive/negative) NPV.
a, c
If a project has multiple internal rates of return, which of the following methods should be used? Multiple select question. a. MIRR b. IRR c. NPV
c. zero
Capital Corp is considering a project whose internal rate of return is 14%. If Capital's required return is 14%, the project's NPV is: a. positive b. negative c. zero
present
Net ________ value is a measure of how much value is created or added today by undertaking an investment.
b. payback
The amount of time needed for the cash flows from an investment to pay for its initial cost is the _____ period. a. discounted payback b. payback c. net present value d. internal return
d. ignores cash flows after the cutoff date
The payback period can lead to incorrect decisions if it is used too literally because it ____. a. uses an arbitrary discount rate b. ignores the initial cost c. includes all the cash flows for every project d. ignores cash flows after the cutoff date
d. Discounted payback period
Which capital budgeting decision method finds the present value of each cash flow before calculating a payback period? a. Average accounting return b. Payback period c. Modified internal rate of return d. Discounted payback period
step 3
Which step involved in the discounted payback period is this? accept of the discounted payback period is less than some respecified number of years