EE - Evaluating a Single Project

Which of the following best defines a capital project?

• A short-term, low-value expense

• A long-term, high-value investment aimed at building, improving, or maintaining physical assets

• A routine maintenance task

• A small-scale research project

Which of the following is an example of a capital project?

• Purchasing everyday office supplies

• Constructing a new hospital

• Paying monthly rent

• Hiring a temporary consultant

What does MARR stand for?

• Maximum Annual Rate of Return

• Minimum Attractive Rate of Return

• Marginal Adjusted Rate of Return

• Market Average Rate of Return

MARR is also commonly known as the:

• Hurdle rate

• Interest rate spread

• Depreciation rate

• Discount rate

Which of the following is one of the reasons for converting all cash flows to a common point in time?

• To simplify accounting procedures

• To fairly compare the value of money over time

• To increase the project's profitability

• To meet regulatory requirements

Which element does NOT contribute to determining a firm's MARR?

• The amount, source, and cost of available money

• The number and purpose of good projects available

• Perceived risk of investment opportunities

• Daily fluctuations in stock prices

Fill in the blank: "To be attractive, a capital project must provide a return that exceeds a _______ established by the organization."

• short-term expense

• minimum level

• maximum threshold

• average investment

Which element does NOT contribute to determining a firm's MARR?

• The amount, source, and cost of available money

• The number and purpose of good projects available

• Perceived risk of investment opportunities

• Daily fluctuations in stock prices

Which of the following best describes the Present Worth (PW) method?

• It projects all cash flows into the future without adjustments.

• It converts all cash inflows and outflows to their present value using a specified interest rate.

• It sums all cash flows without considering the time value of money.

• It focuses only on future salvage values.

According to the present worth method (PW) decision rule, a project is economically justified if:

• The present worth is negative

• The present worth is zero or greater

• The future worth is less than the initial investment

• The annual cash flow exceeds the MARR