ch11

1)Which one of the following methods considers the time value of money in evaluating alternative capital expenditures?

Accounting rate of return.

Net present value.

Payback period.

Cash flow method.

Return on average investment.

2) If a manager were concerned with the time value of money, from which two capital budgeting methods should the manager choose?

IRR or Payback.

BET or IRR.

BET or Payback.

NPV or ARR.

NPV or Payback.

3) The rate that yields a net present value of zero for an investment is the:

Internal rate of return.

Accounting rate of return.

Net present value rate of return.

Zero rate of return.

Payback rate of return.

4) Capital budgeting decisions are risky because all of the following are true except:

The outcome is uncertain.

Large amounts of money are usually involved.

The investment involves a long-term commitment.

The decision could be difficult or impossible to reverse.

They rarely produce net cash flows.

5) Tressor Company is considering a 5-year project. The company plans to invest $90,000 now and it forecasts cash flows for each year of $27,000. The company requires that investments yield a discount rate of at least 14%. Selected factors for a present value of an annuity of 1 for five years are shown below:

Interest rate	Present value of an annuity of $1 factor for year 5
10%	3.7908
12%	3.6048
14%	3.4331

Calculate the internal rate of return to determine whether it should accept this project.

The project should be accepted because it will earn more than 14%.

The project should be accepted because it will earn more than 10%.

The project will earn more than 12% but less than 14%. At a hurdle rate of 14%, the project should be rejected.

The project should be rejected because it will earn less than 14%.

The project should be rejected because it will not earn exactly 14%.