3.1
Which of the following statements is false regarding the net present value method? *
A net present value of zero indicates that the project should be rejected. *
Which of the following equations can be used in certain situations to calculate the payback period?
Investment required ÷ Annual net cash inflow
Which of the following statements is true regarding the payback method?
It excludes depreciation expense from its calculation.
Which of the following statements is true regarding the profitability index?
It is used for preference decisions.
Which of the following is not an example of a typical capital budgeting decision?
The decision to reduce or maintain this year's advertising budget.
Which of the following statements is false with respect to the simple rate of return?
The initial investment included in the denominator should be reduced by the salvage value of the new equipment.
The term capital budgeting describes how companies:
plan significant investments in projects that have long-term implications.
Which of the following statements is false regarding the net present value method? **
A positive net present value indicates that the discount rate exceeds the project's rate of return. **
Which of the following equations is used to calculate the simple rate of return?
Annual incremental net operating income ÷ Initial investment
Which of the following four options is true?
Considers the time value of money: No Considers cash flows: No *Simple Rate of Return
Which of the following four options is true? *
Considers the time value of money: Yes Considers cash flows: Yes *Internal Rate of Return
Which of the following four options is true? **
Considers the time value of money: Yes Considers cash flows: Yes *Net present value
Which of the following statements is true regarding the payback period?
It measures the length of time that it takes for a project to recover its initial cost from the net cash inflows that it generates.
Which of the following statements is true regarding the internal rate of return?
It represents the rate of return earned by an investment project.
Which of the following equations is used to calculate the profitability index?
Present value of cash inflows ÷ Investment required
Which of the following capital budgeting methods computes the discount rate at which the net present value of an investment project is zero?
The internal rate of return method
A company's cost of capital is usually regarded as:
its minimum required rate of return.
Which of the following capital budgeting methods considers cash flows, but not the time value of money?
The payback method
Which of the following capital budgeting methods does not consider cash flows?
The simple rate of return method
A company's cost of capital is:
the average rate of return it must pay to its long-term creditors and shareholders for the use of their funds.