Select one advantage of IRR as a capital budget method.

• A.)

  It generates more accurate cash flow estimates.

• B.)

  It is relatively simple and easily comprehensible.

• C.)

  It tells a company how long it will take to recover their investment.

• D.)

  It is useful for comparing projects with different lifespans.

What is one disadvantage of NPV as a capital budget method?

• A.)

  It is not very good at accounting for opportunity cost.

• B.)

  There is disagreement about whether a project with a negative NPV should be approved or not.

• C.)

  It can only be used to assess a single investment and is not a comparative tool.

• D.)

  It can be inaccurate because a company cannot adjust the discount rate when calculating NPV.

When considering a replacement project, __________ must be included in the cash flow analysis.

• A.)

  unrecoverables

• B.)

  depreciation

• C.)

  salvage value

• D.)

  sunk costs

Which of the following is an example of a market risk for a company that manufactures automobiles?

• A.)

  Difficulty attracting workers with the requisite skills to meet production demands

• B.)

  Increasing costs in the supply chain of material, due to rising fuel costs

• C.)

  A union strike that halts production

• D.)

  Rising tariffs that increase the price of automobiles sold overseas, thereby reducing demand