1. One category of capital investment evaluation methods does not use present value. The primary difference between the category of methods that do use present value and this category is that this category_____(does/doesn't) take the time value of money into account. The basic premise of the time value of money is that a dollar today is worth____(less/more/same) a dollar tomorrow.

2. True or False: Considering the fact that most firms use methods from each category, it can be concluded that both categories have value.

3. This method identifies how long it will take (in years) to recover the____(initial investment/required return/total profit). The particulars of the method vary depending on whether the cash flows from an investment are even or uneven.

4. Suppose that a particular investment required an up-front capital outlay of $100,000. This investment is expected to yield cash flows of $10,000 per year for 10 years. What is the payback period for this investment? If required, round your answer to two decimal places.

Cash Payback Period = $______/ $_______= _______ years

5. Assume that the investment involves an initial outlay of $100,000 with a five-year useful life and no salvage value under straight-line depreciation. The revenues are as follows: Year 1 - $10,000, Year 2 - $20,000, Year 3 - $30,000, Year 4 - $40,000 and Year 5 - $50,000.

Use the minus sign to indicate a net loss.

6. Which of the following is required to compute the NPV of a project?

1. Cost of the project
2. Life of the project
3. Required rate of return
4. All of these choices are correct.

7. Net present value is calculated by:

1. (Present value of projects future cash inflows) (Present value of the projects cost)
2. (Present value of the projects cost) (Present value of projects future cash inflows)
3. (Present value of the project) (Required return on the investment)
4. (Present value of the projects future cash inflows) (Present value of the projects cost) + (Required return)

8. When should the decision of accepting a project be taken?

1. When the net present value of the project is positive.
2. When the net present value of the project is negative.
3. When the net present value of the project is neither positive nor negative.
4. Both "When the net present value of the project is positive" and "When the net present value of the project is neither positive nor negative" are correct.

9. The built-in function in Microsoft Excel PV (________) returns a present value for the cash inflows equal to $57,559.70.

1. (12%, 6, 14000)
2. (12%, -6, 14000)
3. (-12%, 6, 14000)
4. (12%, 6, -14000)

Expenses Net Income $ Year Revenues Year 1 Net Income (loss) Year 2 Net Income (loss) Year 3 Net Income (loss) Year 4 Net Income (loss) Year 5 Net Income (loss) Total Net Income (five years) = $ Average Net Income = $ Average Rate of Return %