Q2 -Which of the following is a disadvantage of using the average accounting return (AAR) as an investment criterion?

Select one:

a. AAR uses an arbitrary benchmark cutoff rate.

b. AAR is difficult to calculate, as it requires estimated future values of variables.

c. AAR is based on accounting and not market values.

d. a and c only

e. a, b and c

Q3Which of the following best defines the profitability index rule for investment decisions?

Select one:

a. A project should be accepted if its net profit is greater than zero.

b. A project should be accepted if its profitability index is greater than zero.

c. A project should be accepted if its net present value is greater than zero.

d. A project should be accepted if its profitability index is greater than one.

e. A project should be rejected if its discounted cash inflows are less than its discounted cash outflows

Q4What should a manager do with a project that has two internal rates of return (IRRs)?

Select one:

a. Do the project if the higher of the two IRRs exceeds the cost of capital.

b. Do the project if the lower of the two IRRs exceeds the cost of capital.

c. Do the project if the net present value of the project is greater than zero.

d. Choose the IRR that looks the most reasonable, and do the project if this chosen IRR is greater than the cost of capital.

e. Abandon the project, as it involves unconventional cash flows.