Question 1

If a capital budgeting project's cash flows are not normal, the internal rate of return method should be used to make the investment decision.

Accepted Answer

A) True 
 B)False

Question 2

A capital budgeting project is expected to have the following cash flows:

What is the project's net present value at an 18% required rate of return?

Accepted Answer

A)  -$4,173.50
B)  $10,800.96
C)  -$18,725.33
D)  $350,000.00

Question 3

Which of the following is true for a project with an expected net present value of $200,000?

Accepted Answer

A)  The project is clearly unacceptable.
B)  The project's cash flows exceed the project's net investment by $200,000 annually.
C)  The project is expected to increase firm value by $200,000 in future value terms.
D)  The project is expected to increase firm value by $200,000 in present value terms.

Question 4

A capital budgeting project is expected to have the following cash flows:

What is the project's payback period?

Accepted Answer

A)  1.50 years
B)  3.30 years
C)  2.50 years
D)  2.30 years

Question 5

A capital budgeting project has a net investment of $450,000 and is expected to generate net cash flows of $150,000 annually for 5 years. What is the net present value at a 15% required rate of return?

Accepted Answer

A)  $64,962
B)  $52,823
C)  $41,144
D)  $300,000

Question 6

Which one of the following capital budgeting decision methods measures how long it takes for a project's benefits to recover the project's cost?

Accepted Answer

A)  profitability index
B)  payback period
C)  modified internal rate of return
D)  net present value

Question 7

Which of the following is true about the net present value method?

Accepted Answer

A)  It is the best single measure of a project's profitability.
B)  It is the best single measure of a project's overall risk.
C)  It is the best single measure of a project's liquidity risk.
D)  It is not a good measure of a project's profitability.

Question 8

If a project's net present value is positive negative), the project is generally acceptable unacceptable).

Accepted Answer

A) True 
 B)False

Question 9

If a project is normal, which of the following is true for a project with an internal rate of return exceeding the required rate of return?

Accepted Answer

A)  The net present value is negative
B)  The net present value is zero
C)  The net present value is positive
D)  There is not enough information to determine anything about the project's net present value.

Question 10

Which of the following is not true of the payback period method?

Accepted Answer

A)  It fails to take into account the time value of money.
B)  It fails to take into account a project's net cash flows.
C)  It fails to take into account a project's net cash flows after the payback period.
D)  There is no objective criterion for what is an acceptable payback period.

Exam 10: Capital Budgeting Decision Methods

Which one of the following capital budgeting decision methods measures how long it takes for a project's benefits to recover the project's cost?

Correct Answer
verified

Which of the following is true for a project with an expected net present value of $200,000?

Correct Answer
verified

A capital budgeting project has a net investment of $450,000 and is expected to generate net cash flows of $150,000 annually for 5 years. What is the net present value at a 15% required rate of return?

Correct Answer
verified

Which of the following is not true of the payback period method?

Correct Answer
verified

If a project is normal, which of the following is true for a project with an internal rate of return exceeding the required rate of return?

Correct Answer
verified

If a project's net present value is positive negative), the project is generally acceptable unacceptable).

Correct Answer
verified

Which of the following is true about the net present value method?

Correct Answer
verified

A capital budgeting project is expected to have the following cash flows: What is the project's payback period?

Correct Answer
verified

A capital budgeting project is expected to have the following cash flows: What is the project's net present value at an 18% required rate of return?

Correct Answer
verified

If a capital budgeting project's cash flows are not normal, the internal rate of return method should be used to make the investment decision.

Correct Answer
verified

Exam 10: Capital Budgeting Decision Methods

Which one of the following capital budgeting decision methods measures how long it takes for a project's benefits to recover the project's cost?

Correct AnswerverifiedShow Answer

Which of the following is true for a project with an expected net present value of $200,000?

Correct AnswerverifiedShow Answer

A capital budgeting project has a net investment of $450,000 and is expected to generate net cash flows of $150,000 annually for 5 years. What is the net present value at a 15% required rate of return?

Correct AnswerverifiedShow Answer

Which of the following is not true of the payback period method?

Correct AnswerverifiedShow Answer

If a project is normal, which of the following is true for a project with an internal rate of return exceeding the required rate of return?

Correct AnswerverifiedShow Answer

If a project's net present value is positive negative), the project is generally acceptable unacceptable).

Correct AnswerverifiedShow Answer

Which of the following is true about the net present value method?

Correct AnswerverifiedShow Answer

A capital budgeting project is expected to have the following cash flows: What is the project's payback period?

Correct AnswerverifiedShow Answer

A capital budgeting project is expected to have the following cash flows: What is the project's net present value at an 18% required rate of return?

Correct AnswerverifiedShow Answer

If a capital budgeting project's cash flows are not normal, the internal rate of return method should be used to make the investment decision.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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