1. Which of the following capital budgeting techniques ignores the time value of money? (a) Payback. (b) Net present value. 2. Which of the following statements is false? (c) Internal rate of return. (d) b and
1. Which of the following capital budgeting techniques ignores the time value of money? (a) Payback. (b) Net present value. 2. Which of the following statements is false? (c) Internal rate of return. (d) b and
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A. MULTIPLE CHOICE: Analyze the following questions and choose among the options which you think
is the correct answer. Write the letter of your choice. (2
1. Which of the following capital budgeting techniques ignores the time value of money?
(a) Payback.
(b) Net present value.
2. Which of the following statements is false?
(a) If the payback period is less than the maximum acceptable payback period, accept the project.
(b) If the payback period is greater than the maximum acceptable payback period, reject the project.
(c) If the payback period is less than the maximum acceptable payback period, reject the project
(d) Two of the above.
3. Should Pharms company accept a new project if its maximum payback is 3.5 years and its initial cost
is P5,000,000 and it is expected to provide operating cash inflows of P1,800,000 in year 1, P900,000
in year 2, P600,000 in year 3 and P1,800,000 in year 4?
(а) Yes.
(b) No.
4. What is the NPV for the following project if its cost of capital is 15 percent and its initial cost is
P5,000,000 and it is expected to provide operating cash inflows of P1,800,000 in year 1, P900,000 in
year 2, P600,000 in year 3 and P1,800,000 in year 4?
(a) P1,700,000
(b) P371,764
5. Consider the following projects, X and Y, where the firm can only choose one. Project X costs
P6,000,000 and has cash flows of P4,000,000 in each of the next 2 years. Project Y also costs
P6,000,000 and generates cash flows of P5,000,000 and P3,000,000 for the next 2 years, respectively.
Which investment should the firm choose if the cost of capital is 22 percent?
(a) Project X.
(b) Project Y.
(c) Internal rate of return.
(d) b and
(c) It depends.
(d) None of the above.
(c) (P137,053)
(d) (P1,330,588)
(c) Neither.
(d) Not enough information to tell
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