1. Whenever there is a conflict between NPV and another decision rule, you should always use NPV.

A. True

B. False

2. ________ finds one or more companies that specialize in the product or service that we are considering.

A. The Objective Approach

B. The Pure Play Approach

C. The Subjective Approach

D. None of the above

3. The required return of bond is best estimated by computing the ________ on the bond.

A. Yield-to-maturity

B. market value

C. Risk

D. Both A and B

4. The return earned on assets depends on the ________ of those assets.

A. Book value

B. Net book value

C. Risk

D. Liquidity

5. Which of the following is/are correct?

A. If the salvage value is the same as the book value of the asset, then there is a tax effect.

B. Book value = initial cost - accumulated depreciation

C. After-tax salvage = salvage - Tax Rate x (salvage - book value)

D. Both B and C

6. ________ is the most important alternative to Net Present Value.

A. IRR

B. Payback Method

C. Average Accounting Return

D. Discounted Payback

7. The mean difference between Payback and Discounted Payback is:

A. Discounted Payback accounts for the time value of money and Payback does not

B. Discounted Payback accounts for the risk of the cash flows and Payback does not

C. Only Payback does not provide an indication about the increase in value

D. Both A and B

8. The ________ measures the time to get the initial cost back.

A. Internal Rate of Return

B. Net Present Value

C. Payback period

D. Profitability Index

9. Which of the following element/s should be considered when evaluating capital budgeting decision rules?

A. Time value of money

B. Adjustment for risk

C. Creating value for the firm

D. All of the above