1. The capital budgeting method that does NOT focus on amounts and timing of cash flows is the:
a.
accounting rate of return.
b.
payback period.
c.
net present value.
d.
internal rate of return.
correct: a
2. All of the following are true of a project's internal rate of return (IRR) except:
a.
the IRR is the discount rate that causes the present value of the net cash flows to
equal the historical cost of the equipment currently owned.
b.
the IRR is the project's expected rate of return.
c.
if the IRR is used as the discount rate to determine a project's net present value
(NPV), the NPV will be zero.
d.
All of the choices are true of a project's IRR.
correct: a
3. A machine costs $100,000, has a useful life of five years, and is expected to yield a cash flow
of $25,000 each year. What is the payback period?
a.
3 years
b.
4 years
c.
5 years
d.
1 year
correct: b
4. If a project has a negative net present value, the project's actual rate of return:
a.
is less than the required rate of return.
b.
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 Fall '08
 NaceMagner
 Accounting, Cost Accounting, Net Present Value

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