1. Consider the following three statements and determine which is/are true: I. The net present value method is simpler to use than the time adjusted rate of return method II. the use of the net present value method makes it more difficult to adjust for risk than the time adjusted rate of return method III. The net present value method provides more usable information than does the time adjusted rate of return method

a. Only 1

b. Only 2

c. Only 1 and 2

d. Only1 and 3

2. A weakness in the concept of return on average investment is that:

a. The amount of average investment cannot be determined until the investment has been fully depreciated b. It fails to consider profitability over the entire life of the investment c. It fails to consider the timing of the future flows d. Management has no way of determining whether a given rate is satisfactory

3. Capital budgeting can be defined as the process of:

a. Planning and evaluating proposals for investment in plant assets b. Determining the amounts of capital that will be needed for plant operation c. Preparing the cash budget for the year d. Limiting monthly cash expenditures to the amount of monthly cash receipts

4. If the discount rate used in discounting cash flows from proposed new investment is the minimum rate of return required by investors, then _

a. The annual cash flow will decrease to zero over the estimated life of proposed investment b. The annual cash flow will ordinarily be less than the net income from the proposed investment during the first year c. The present value of each year's cash flow will be the same amount d. The investment will have a net present value if it provides a rate of return greater than the discount rate

5. It is assumed cash flows are reinvested at the rate actually earned by the investment in which of the following capital budgeting techniques?

a. Time-adjusted rate of return: Yes; NPV: Yes b. Time-adjusted rate of return: Yes; NPV: No c. Time-adjusted rate of return: No; NPV: No d. Time-adjusted rate of return: No; NPV: Yes