5. In which of the following ways does a postaudit help to improve managerial decision making?

a.It supplies feedback to managers to improve future decision making.

b.It corrects the estimated benefits and costs of a project.

c.It provides information that helps management in choosing among various mutually exclusive projects.

d.It assists management in deciding whether a project should be selected or not.

6. Which of the following statements is a limitation of the net present value (NPV) model while making a capital investment decision?

a.The NPV model ignores the time value of money while making a capital investment decision.

b.The NPV method measures profitability in relative terms, and in the final analysis, what counts are the total dollars earnedthe absolute profit not the relative profits.

c.The NPV model allows firms to use a higher discount rate than its cost of capital because of uncertain future cash flows.

d.The NPV model assumes that each cash inflow received is reinvested at the internal rate of return, which is not a realistic assumption.

7. Carriage Inc., a steel manufacturing company, is planning to buy a new plant. The internal rate of return provided by the new plant is 6%. The cost of capital for Carriage Inc. is 8%. Based on the given scenario, which of the following statements is true in the context of internal rate of return?

a.Carriage Inc. should invest in the new plant because the project will earn more than zero IRR from the project.

b.Carriage Inc. should not invest in the new plant because the IRR of the project is less than its cost of capital.

c.Carriage Inc. should not invest in the new plant because IRR is not a reliable model for making capital investment decisions.

d.Carriage Inc. should invest in the new plant because IRR is the true or actual simple rate of return that is earned by the initial investment.

8. Which of the following statements is true about the internal rate of return (IRR)?

a.If the IRR is less than the required rate of return, the firm is indifferent between accepting or rejecting the investment proposal.

b.If the IRR is greater than the required rate of return, the firm is indifferent between accepting or rejecting the investment proposal.

c.If the IRR is greater than the required rate, the project is deemed acceptable.

d.If the IRR is less than the required rate of return, the project is deemed acceptable.

9. Daphne Inc., a steel manufacturing company, is planning to buy a new plant at $1,100,000. The life of the plant is estimated to be 5 years and has cash flows of $110,000, $220,000, $330,000, $440,000, and $550,000. Calculate the payback period for the new plant.

a.5 years

b.4 years

c.2 years

d.3 years