1. The average rate of return:

a. Is based on incremental cash flows

b. Ignores the time value of money

c. Compares average annual earnings to average annual costs

d. Is the same for all projects with the same lives

e. None of the above could be true.

2. A capital budgeting technique, the IRR is:

a. Equal to the cost of capital of the firm

b. The rate return that makes the cash inflows and outflows of an investment equal

c. Computationally too difficult to use

d. Unsuitable for independent projects

e. None of the above could be true.

3. If a projects internal rate of return is 22 percent and its net present value is positive, the required return for the project:

a. Is greater than 22 percent

b. Is less than 22 percent

c. Is equal to 22 percent

d. Can be greater or less than 22 percent

e. None of the above could be true.

4. A companys stock price will fall:

a. If it increases its dividends

b. The first time it pays a dividend

c. If it maintains a constant payout ratio

d. If it omits dividends because of poor earnings

e. None of the above could be true.