1.An anticipated purchase of equipment for $400,000 with a useful life of 8 years and no residual value is expected to yield the following annual net incomes and net cash flows:

Year	Net Income	Net Cash Flow
1	$60,000	$120,000
2	50,000	110,000
3	50,000	90,000
4	40,000	80,000
5	40,000	90,000
6	40,000	90,000
7	40,000	90,000
8	40,000	90,000

What is the cash payback period?

2.

All of the following are advantages of using the average rate of return except

a. The average rate of return is easy to compute.

b. The average rate of return method uses present values.

c. The average rate of return method includes the entire amount of the income earned over the life of the proposal.

d. None of these choices are correct.

3.

The interest rate used in net present value analysis is referred to as the

a. rate of return on investments.

b. hurdle rate.

c. internal rate of return.

d. None of these choices are correct.

4.

When using capital rationing, unfunded proposals

a. are discarded for purposes of decision making for all future plans.

b. may be reconsidered if funds later become available.

c. are always considered to be unacceptable.

d. None of these choices are correct.