WorksheetsChapter 4
Total questions: 10
Worksheet time: 5mins
Demand for investment divided by the annual cash flow used to calculate:
Profitability index
Payback period
Simple profit ratio
All of the above statements are false.
Which of the following methods serves to make capital budgeting decisions
The net present value method (NPV)
The payback period method (PP)
The internal rate of return method (IRR)
All of the above statements are true.
Screening decision is the investment decision:
Choose one of several options to find the best one
Choose a separate plan attached to certain conditions.
Choose one option in many similar variants associated with certain conditions and standards.
All of the above statements are false.
A positive net present value means that the:
Project's rate of return is less than the cutoff rate
Project's rate of return exceeds the required rate of return
Project's rate of return equals the required rate of return
Project is inacceptable
Long-term investment decisions are characterized by:
The return of capital lasted many years
Affected by the price of money and financial risks
The investment capital exceeds the financial capacity in the business period
All of above statements are true.
The main content of the internal rate of return method is:
Calculates a payback ratio where NPV will be zero
Calculates an investment ratio at which the NPV will be zero
Calculates a long-term debt ratio where NPV is zero
All of the above statements are false.
What is a weakness of the cash payback approach ?
It uses accrual based accounting numbers
It ignores the time value of money
It is complicated to compute
It cannot be used of a project has uneven net annual cash flows.
Which one of the following statements is INCORRECT ?
A risk averse investor wants to avoid risk entirely
Shorter term forecasts are likely to be more reliable
Investment risk is lower if payback is longer
Earlier payback improves profitability
A project should be accepted if its internal rate of return exceeds:
Zero.
The rate of return on a government bond.
The company's required rate of return.
The rate the company pays on borrowed funds.
Which of the following is incorrect about the annual rate of return method ?
The calculation is simple
The accounting terms used are familiar to management
The timing of the net cash flows is not considered
The time value of money is considered
