Unformatted text preview: equals or exceeds the required internal rate of return. Diff: 2 Terms: required rate of return (RRR), internal rateofreturn (IRR) method Objective: 3 AACSB: Reflective thinking 14) The net present value method can be used in situations where the required rate of return varies over the life of the project. Answer: TRUE Diff: 2 Terms: net present value (NPV) method, required rate of return (RRR) Objective: 3 AACSB: Reflective thinking 15) The net present value method can on occasion indicate erroneous decisions as it implicitly assumes that project cash flows can be reinvested at the project's rate of return. Answer: FALSE Explanation: The internal rate of return method implicitly assumes that project cash flows can be reinvested at the project's rate of return. The net present value method accurately assumes that project cash flows can only be reinvested at the company's required rate of return. Diff: 2 Terms: net present value (NPV) method, required rate of return (RRR) Objective: 3 AACSB: Reflective thinking 16) Unlike the present value method and the internal rateofreturn method, the payback method does not distinguish between the origins net of the cash flows. Answer: FALSE Explanation: None of the three capital budgeting methods distinguish between the origins of the cash flows. Diff: 2 Terms: NPV method, internal rateofreturn (IRR) method, payback Objective: 4 AACSB: Reflective thinking 17) The payback method is only useful when the expected cash flows in the later years of the project are highly uncertain. Answer: FALSE Explanation: The payback method is only useful when the expected cash flows in the later years are highly certain. Diff: 3 Terms: payback Objective: 4 AACSB: Analytical skills 18) The payback method allows for managers to highlight liquidity. Answer: TRUE Diff: 2 Terms: payback Objective: 4 AACSB: Analytical skills 19) The accrual accounting rate of return is the method that is based most closely on the information in the financial statements. Answer: TRUE Diff: 2 Terms: accrual accounting rate of return (AARR) Objective: 5 AACSB: Reflective thinking 20) The ac...
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 Spring '10
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 Accounting, Cost Accounting, Net Present Value, The Bible, AACSB, Reflective thinking, Capital Budgeting

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