Select all that are true with respect to the IRR rule for making capital investment decisions. Group of answer choices The IRR rule does not distinguish between borrowing and lending One can use the IRR rule for investment decision making without knowing the discount rate The project with the highest IRR does not necessarily create the most value add The IRR rule ignores cash flows that are very far in the future The project with the highest IRR is by definition the project with the most value add The IRR is the discount rate that makes the project's NPV equal to zero

Select all that are true with respect to the IRR rule for making capital investment decisions. Group of answer choices The IRR rule does not distinguish between borrowing and lending One can use the IRR rule for investment decision making without knowing the discount rate The project with the highest IRR does not necessarily create the most value add The IRR rule ignores cash flows that are very far in the future The project with the highest IRR is by definition the project with the most value add The IRR is the discount rate that makes the project's NPV equal to zero

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 1MCQ

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Select all that are true with respect to the NPV rule for making capital investment decisions. Group of answer choices When done correctly, NPV directly measures expected value creation NPV ignores cash flows in the distant future NPV causes decision makers to be myopic For independent projects, all positive NPV projects should be taken, and negative NPV projects should not be taken For mutually exclusive projects, choose the project with the highest NPV
Select the incorrect statement concerning the internal rate of return (IRR) method of evaluating capital projects. Multiple Choice A project whose IRR is more than the cost of capital should be rejected. The higher the IRR the better. The internal rate of return is that rate that makes the net present value equal to zero. If a project has a positive net present value then its IRR will exceed the hurdle rate.
Why the payback method is often considered inferior to discounted cash flow in capital investment appraisal? Select one: a. It is more difficult to calculate b. It does not calculate how long it will take to recoup the money invested c. It only takes into account the future income of a project d. None of the option e. It does not take account of the time value of money
Consider the following statement: In a capital rationing problem withdivisible investments, if all projects have positive present worths, all of theinvestment capital will be used. Solve, a. This statement is true b. This statement is false c. Not enough information is given; the numeric values of the present worths of the projects are required to know whether this statement is true or false d. Not enough information is given; the numeric values of the IRRs of the projects and the value of MARR are required to know whether this statement is true or false
which of the following statement is true>? 1. return on equity is the ratio of total assets to total net income 2. one must know the discount rate to compute the npv of a project but one can compute the IRR without referring to the discount rate. 3. there will always be one IRR regardless of cash flows 4. one must know the discount rate to compute the IRR of a project but one can compute the NPV without referring to the discount rate 5. payback accounts for time value of money
QUESTION #1: Which of the following is a disadvantage of using the IRR method of capital budgeting over other types: A- IRR does not consider the time and value of money. B- IRR assumes reinvestment of project cash flows at the same rate as the IRR C- IRR ignores the prudent simplicity of paybacks D- None of the above QUESTION #2: The net present value (NPV) of an investment is___________. A- The present value of all benefits (cash inflows) B- The present value of all costs (cash outflows) of the project C- The present value of all benefits (cash inflows) minus the present value of all costs (cash outflows) of the project D- The present value of all benefits (cash outflows) minus the present value of all costs (cash inflows) of the project
Which of the following statements is true? 1. Neither the net present value method nor the internal rate of return method can be used as a screening tool in capital budgeting decisions. 2. If the internal rate of return is less than the required rate of return for a project, then the net present value of that project is positive. 3. An investment project with a profitability index of 0.04 has an internal rate of return that is less than the discount rate. Multiple Choice Only statement 3 is true. All of the statements are true. None of the statements are true. Only statement 1 is true.
You should accept a project when the ?: net present value is negative. profitability index is positive. payback period exceeds the required period. AAR is greater than the required return. 7. Which one of the following statements is correct? The payback period is also referred to as the benefit-cost ratio. The internal rate of return can be reliably used for all independent projects. The profitability index is used when the investment funds are limited. The net present value should not be used to rank mutually exclusive projects. 8. You should accept a project when the ?: net present value is negative. profitability index is less than 1 but greater than 0. discounted payback period is less than the required period. AAR is less than the required return. 9. The crossover point ? : is used to determine which one of two internal rates of return for a project should be used when determining if a project should be accepted. 2. is the…
If a firm uses its weighted average cost of capital (WACC) as the discount rate for all of the projects it undertakes then the firm will tend to: I. reject some positive net present value projects. II. accept some negative net present value projects. III. favor low risk projects over high risk projects. IV. increase its overall level of risk over time. Group of answer choices I and III only III and IV only I, II, and III only I, II, and IV only I, II, III, and IV
You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. If the discount rate decreases the it would lower the calculated value of the investment. Group of answer choices True False
Question7 In discounted cash flow analysis, which of the following is a bad decision rule for a normal investment project? A If internal rate of return (IRR) is greater than the cost of capital then reject B If IRR is less than cost of capital then reject C If net present value (NPV) is greater than 0 then accept D If NPV is negative then reject
Which of the following statements about the "payback method" of selecting capital projects is true? Question 15 options: A) The payback method considers all cash flows, even those that occur after the payback has been reached. B) In the payback method, all cash flows are disregarded. C) The payback method has many deficiencies. D) The payback method always leads to the same decision as the other investment selection methods.