Multiple Choice Questions

1. Which of the following is an objective of capital budgeting? A. To eliminate all risk. B. To discount all future and past cash flows. C. To earn a satisfactory return on investment. D. To reverse past decisions. E. To reduce the number of investment activities.

2. The process of analyzing alternative investments and deciding which assets to acquire or sell is known as: A. Planning and control. B. Capital budgeting. C. Variance analysis. D. Master budgeting. E. Managerial accounting.

3. The process of restating future cash flows in terms of their present values is called: A. Discounting. B. Capital budgeting. C. Payback period. D. Risk uncertainty. E. Accounting rate of return.

4. A minimum acceptable rate of return for an investment decision is called the: A. Internal rate of return. B. Average rate of return. C. Hurdle rate of return. D. Maximum rate of return. E. Payback rate of return.

5. The time expected to pass before the net cash flows from an investment would return its initial cost is called the: A. Amortization period. B. Payback period. C. Interest period. D. Budgeting period. E. Discounted cash flow period.

6. A disadvantage of using the payback period to compare investment alternatives is that: A. It ignores cash flows beyond the payback period. B. It includes the time value of money. C. It cannot be used when cash flows are not uniform. D. It cannot be used if a company records depreciation. E. It cannot be used to compare investments with different initial investments.