1.The cost of capital:

a.reflects the perceived level of risk that investors require

b.is used to calculate the accounting rate of return

c.is used to calculate the future value of

d.is another term for the rate of return

2.All of the following use the time value of money to evaluate long-term investments EXCEPT:

a.the payback method

b.the net present value method

c.the internal rate of return

d.the profitability index

3.In capital budgeting, the accounting rate of return:

a.considers the time value of money

b.ignores cash outflows after the initial investment

c.incorporates the timing of cash flows

d.utilizes depreciation for the calculation of average income

4.The net present value (NPV) capital budgeting decision method:

a.can be directly compared between alternatives

b.incorporates the time value of money in the calculations

c.is based on accounting net income

d.indicates an acceptable capital project with a negative value

5.Which of the following indicates an UNACCEPTABLE capital project?

a.The internal rate of return exceeds the cost of capital.

b.The net present value of a project is 10.

c.The profitability index of a project is 0.97.

d.The accounting rate of return exceeds the target rate of return.