1. Assume that 'P' is present value of cash inflows and 'I' is present value of cash outflows of a project. Which of the following equations is used to calculate the net present value (NPV) of an investment?

a.NPV = P I

b.NPV = (P I) / I

c.NPV = P + I

d.NPV = (P I) I

2. Which of the following statements is true about mutually exclusive projects?

a.Mutually exclusive projects are those projects that, if accepted, preclude the acceptance of all other competing projects.

b.Mutually exclusive projects are projects that, if accepted, automatically lead to the acceptance of competing projects.

c.Mutually exclusive projects are projects that, if accepted, do not affect the cash flows of other projects.

d.Mutually exclusive projects are projects that, if accepted, have a negative effect on the company's profit.

3. Which of the following is a limitation of using the payback period model for making capital budgeting decisions?

a.The payback period model evaluates the profitability of an investment by considering the time value of cash flows from a project.

b.The payback period model ignores the cash flow performance of investments beyond the recovery of the original investment.

c.The payback period model is dependent upon net income, which is something that can be easily manipulated by managers.

d.The payback period model is dependent upon required rate of return of investment.

4. Which of the following statements is true about independent projects?

a.Independent projects are projects that, if accepted or rejected, affect the net profit of other projects.

b.Independent projects are projects that, if accepted or rejected, do not affect the cash flows of other projects.

c.Independent projects are projects that, if accepted, have to accept one small project to assist other independent projects.

d.Independent projects are projects that, if accepted, have a negative effect on the company's profit.

5. A project is selected among mutually exclusive projects:

a.when the project's payback period is the longest.

b.when the project has the largest net present value.

c.when the project has the lowest internal rate of return.

d.when the project has a negative accounting rate of return.