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b. ignores cash flows beyond the payback period.c. applies only to mutually
exclusive investment proposals.d. discounts cash flows at a minimum desired rate of
return.ANSWER: d EASY36. Which of the following statements is
true
regarding capital budgeting methods?a.
b. The internal rate of return measure used for capital project evaluation has
moreconservative assumptions than the net present value method, especially
forprojects that generate a positive net present value.c. The net present value
method of project evaluation will always provide the sameranking of projects as the
profitability index method.d. The net present value method assumes that all cash
inflows can be reinvested at
ANSWER: d EASY
a. discount rate is above its cost of capital.b. internal rate of return is less than
zero.c. payback period is infinite.d. net present value is negative.ANSWER: d EASY
cash inflows associated with a project exceed the total cash outflows
a. net present value is greater than zero.b. internal rate of return is greater than
zero.c. profitability index is greater than 1.d. payback period is acceptable.ANSWER:
b EASY44. The net present value and internal rate of return methods of decision
making in capitalbudgeting are superior to the payback method in that theya. are
easier to implement.b. consider the time value of money.c. require less input.d.
reflect the effects of sensitivity analysis.ANSWER: b EASY
c.
d.
sed to evaluate a project is equal to the project’s internal rateof return, the
project’s _____________ is zero.
can move up or down depending on whether the firm’s cost of capital is high or