8. This focuses on the number of time periods required to recoup an initial investment.

A. Payback method

B. Net present value

C. Internal rate of return

D . None of these

1. If examining mutually exclusive projects,

1. Only one project can be accepted
2. NPV, IRR, and payback method will give equally good decisions
3. We would pursue every project with a positive NPV
4. We would pursue the project with the quickest payback period

2. MACRS depreciation

1. Classified assets by category to determine appropriate depreciation schedule
2. Attempts to match the depreciation period with the assets expected life
3. Allows larger annual depreciable expenses earlier in the assets life
4. All of these apply

3. Small businesses will often use the payback method or a similar less sophisticated approach for all of these reasons except which one?

1. The less sophisticated methods are also easier to use, and available to even those with no finance background.
2. Payback helps focus on the most important measure, actual time to repayment
3. Other options, like NPV and IRR, are often out of reach in terms of complexity
4. Bankers and finance companies focus on how a loan will be repaid, and how long that will take

4. What is the second step of the capital budgeting process?

1. An artificial constraint on funding
2. Limits the amount of funding available on an individual project basis

C . Allows the company to make larger investments

3. Lowers the companys overall risk level

5. The net present value method makes what reinvestment assumption?

1. Proceeds are reinvested at the firms cost of capital

B . Proceeds are reinvested at the projects rate of return

C.Proceeds are reinvested at the overall market rate of return

4. Proceeds are not reinvested

13 . Capital rationing is

1. An artificial constraint on funding
2. Limits the amount of funding available on an individual project basis
3. Allows the company to make larger investments
4. Lowers the companys overall risk level

14. The reinvestment assumption

1. Tells us what rate any proceeds from a project should earn
2. Provides a secondary cutoff rate for evaluating projects
3. Funds will not be reinvested because we cannot determine what rate those funds would earn
4. Should be different for each project based on that individual projects rate of return