1.

Which of the following is correct?

A.

Capital budgeting methods produce the same decision and their use is

based on the information available.

B.

The internal rate of return method does not consider the time value of

money.

C.

The net present value method considers the time value of money.

D.

The cost of capital is the company's desired rate of return.

2.Which of the following capital decision methods assumes that income is the same over the life of an investment?

A.Accounting Rate of Return

B.Internal Rate of Return

C.Net Present Value

D.Payback method

3.Which of the following capital decision methods ignores the cash flows after the original investment is recovered?

A.Accounting Rate of Return

B.Internal Rate of Return

C.Net Present Value

D.Payback method

4.Which of the following capital decision methods computes the project's unique rate of return and considers the time value of money?

A.Accounting Rate of Return

B.Internal Rate of Return

C.Net Present Value

D.Payback method

5.Which of the following capital decision methods shows the excess or deficiency of the asset's present value of net cash inflows over its initial investment cost?

A.Accounting Rate of Return

B.Internal Rate of Return

C.Net Present Value

D.Payback method

6.Cemenza Company is considering the purchase of a new machine. The machine cost

$227,500 and will generate a yearly cash inflow of $35,000. What is the payback period?

A.5 years and 11 months

B.6 years and 6 months

C.7 years and 1 month

D.8 years and 3 months

7.A manufacturing company purchased a new machine for $150,000. The machine will last ten years and will be depreciated using the straight-line method. The estimated salvage value of the machine is zero and should generate a yearly cash inflow of $39,000.Ignoring taxes, what is the accounting rate of return?

A.14%

B.15%

C.16%

D.17%

8.When converting from net cash inflows to operating income, depreciation is:

A.not considered in the computation.

B.subtracted from net cash inflows.

C.added to net cash inflows.

D.subtracted from operating income.

9.Which of the following statements is correct if the net present value of the investment is positive and the company is not under the constraint of capital rationing?

A.Compute the proposals IRR.

B.Compare the proposal to other proposals using the profitability index.

C.Reject the proposal.

D.Accept the proposal.

10.Ranking mutually exclusive investment proposals on the basis of IRR, NPV, and

profitability index methods

A.will generally

B.will always

C.may

D.will never

give similar results.