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If the internal rate of return (IRR)of an investment is lower than the hurdle rate,the project should be rejected.

A) True
B) False

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A company has a decision to make between two investment alternatives.The company requires a 10% return on investment.Predicted data is provided below: A company has a decision to make between two investment alternatives.The company requires a 10% return on investment.Predicted data is provided below: Required: (a)Calculate the net present value for each investment. (b)Which investment should this company select? Explain. Required: (a)Calculate the net present value for each investment. (b)Which investment should this company select? Explain.

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(a)
blured image (b)Select Inve...

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The net cash flow of a particular investment project:


A) Does not take income taxes into consideration.
B) Equals the total of the cash inflows of the project.
C) Equals the total of the cash outflows of the project.
D) Does not include depreciation.
E) Is equal to operating income each period.

F) A) and E)
G) B) and E)

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Capital budgeting decisions are generally based on:


A) Tentative predictions of future outcomes.
B) Perfect predictions of future outcomes.
C) Results from past outcomes only.
D) Results from current outcomes only.
E) Speculation of interest rates and economic performance only.

F) B) and C)
G) C) and D)

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The following present value factors are provided for use in this problem. The following present value factors are provided for use in this problem. -Cliff Co.wants to purchase a machine for $40,000,but needs to earn a return of 8%.The expected year-end net cash flows are $12,000 in each of the first three years,and $16,000 in the fourth year.What is the machine's net present value? A) $(9,075) . B) $2,685. C) $42,685. D) $(28,240) . E) $52,000. -Cliff Co.wants to purchase a machine for $40,000,but needs to earn a return of 8%.The expected year-end net cash flows are $12,000 in each of the first three years,and $16,000 in the fourth year.What is the machine's net present value?


A) $(9,075) .
B) $2,685.
C) $42,685.
D) $(28,240) .
E) $52,000.

F) B) and D)
G) C) and D)

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The minimum acceptable rate of return on an investment,often the company's cost of capital,is called the ________.

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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.

F) A) and E)
G) None of the above

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The process of analyzing alternative long-term 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.

F) All of the above
G) D) and E)

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A company produces two boat models,Flyer and Skimmer.Both products are being considered for major investment projects next year.Relevant data follow: A company produces two boat models,Flyer and Skimmer.Both products are being considered for major investment projects next year.Relevant data follow: Required: Use the payback period to evaluate these two investment projects. Required: Use the payback period to evaluate these two investment projects.

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blured image Payback period = 2 years + ($...

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What is capital budgeting? Why are capital budgeting decisions often difficult and risky?

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Capital budgeting is the process of anal...

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After-tax net income divided by the average amount invested in a project,is the:


A) Net present value rate.
B) Payback rate.
C) Accounting rate of return.
D) Earnings from investment.
E) Profit rate.

F) B) and E)
G) A) and C)

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The payback method,unlike the net present value method,ignores cash flows after the point of cost recovery.

A) True
B) False

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For projects financed from borrowed funds,the hurdle rate must exceed the interest rate paid on the borrowed funds.

A) True
B) False

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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.

F) None of the above
G) All of the above

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Three widely used methods of comparing investment alternatives are payback period,net present value,and rate of return on average investment.

A) True
B) False

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Poe Company is considering the purchase of new equipment costing $80,000.The projected annual cash inflows are $30,200,to be received at the end of each year.The machine has a useful life of 4 years and no salvage value.Poe requires a 10% return on its investments.The present value of $1 and present value of an annuity of $1 for different periods is presented below. Poe Company is considering the purchase of new equipment costing $80,000.The projected annual cash inflows are $30,200,to be received at the end of each year.The machine has a useful life of 4 years and no salvage value.Poe requires a 10% return on its investments.The present value of $1 and present value of an annuity of $1 for different periods is presented below. -Compute the net present value of the machine. A) $(15,731) . B) $(4,896) . C) $15,731. D) $4,896. E) $32,334. -Compute the net present value of the machine.


A) $(15,731) .
B) $(4,896) .
C) $15,731.
D) $4,896.
E) $32,334.

F) A) and B)
G) B) and C)

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


A) Accounting rate of return.
B) Net present value.
C) Payback period.
D) Cash flow method.
E) Return on average investment.

F) B) and D)
G) C) and D)

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A company is considering the purchase of new equipment for $45,000.The projected annual net cash flows are $19,000.The machine has a useful life of 3 years and no salvage value.Management of the company requires a 12% return on investment.The present value of an annuity of $1 for various periods follows: A company is considering the purchase of new equipment for $45,000.The projected annual net cash flows are $19,000.The machine has a useful life of 3 years and no salvage value.Management of the company requires a 12% return on investment.The present value of an annuity of $1 for various periods follows: What is the net present value of this machine assuming all cash flows occur at year-end? A) $(1,768) B) $3,000 C) $634 D) $19,000 E) $45,634 What is the net present value of this machine assuming all cash flows occur at year-end?


A) $(1,768)
B) $3,000
C) $634
D) $19,000
E) $45,634

F) A) and E)
G) A) and D)

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If the internal rate of return (IRR)of an investment is lower than the hurdle rate,the project should be accepted.

A) True
B) False

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


A) Internal rate of return.
B) Accounting rate of return.
C) Net present value rate of return.
D) Zero rate of return.
E) Payback rate of return.

F) A) and C)
G) B) and D)

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