1. Which of the following statements is correct?

a. All the answers are correct.

b. The NPV cannot be used effectively for projects with unconventional cash flows.

c. The decision criterion for the accounting rate of return is consistent with the goal of shareholder wealth maximization.

d. The NPV provides a direct (dollar) measure of how much a capital project will increase the value of the firm.

e. The process of limiting, or rationing, capital expenditures among possible projects is called capital budgeting.

2. Which of the following statements is correct?

a. With independent projects, accepting or rejecting one project does not eliminate other projects from consideration (assuming the firm has unlimited funds to invest).

b. There is a strong economic rationale that links the payback method to stockholder value maximization.

c. All the answers are correct.

d. If a capital project has a negative Payback Period, the value of the cash flows the project is expected to generate exceeds the project's cost.

e. Projects are classified as independent when their cash flows are related.

3. Which of the following statements is incorrect?

a. The greatest shortcoming of the payback method is its failure to consider cash flows after the payback period.

b. Most of the answers are correct except one.

c. The IRR is the discount rate that equates the present value of a project's cost to the present value of its expected cash inflows.

d. One of the weaknesses of the ordinary payback period criteria is that it does not take into account the time value of money.

e. A project's payback period provides an objective measure of its incremental value to the firm's investors, and thus makes it simple to choose between two or more mutually exclusive projects.