26

Which of the following best describes a capital budgeting​ post-audit

a comparison of actual results of capital investments with projected results

Which of the following most accurately describes an​ annuity?

a stream of equal cash payments made at equal time intervals

Discounted cash flow​ methods, such as net present value and internal rate of​ return,

consider discounted cash flows

Capital rationing is a process adopted when a company has limited​ resources, and it must find ways to reduce operating expenses in all of its divisions and units.

false

Managers generally use payback as the sole method for deciding whether to invest in an asset

false

The payback method considers cash flows that occur both during and after the payback period.

false

​Management's minimum desired rate of return on a capital investment is known as the return on investment.

false

Which of the following is the rate of​ return, based on discounted cash​ flows, a company can expect to earn by investing in a capital​ asset?

internal rate of return

Capital budgeting is the​ ________

process of planning for investments in​ long-term assets

Which of the following best describes the profitability​ index?

the ratio of present value of net cash inflows to initial investment

An opportunity cost is the benefit foregone by choosing an alternative course of action

true

Compound interest assumes that all interest earned will remain invested and earn additional interest at the same interest rate

true

The accounting rate of return is calculated by dividing the average annual operating income by the average amount invested.

true

The payback and accounting rate of return​ (ARR) methods are suitable for investments with a relatively short time span.

true