QUIZ 1
C306
Financial Management 2
1.
Although quick and easy to apply, the payback method is deficient in that it:
a.
disregards the time value of money.
b.
is based on arithmetic rather than algebra.
c.
disregards cash flows after the payback period.
d.
2.
Which of the following best describes the reinvestment assumptions implicit in the internal rate
of return (IRR) method and the net present value (NPV) method?
a.
Both NPV and IRR assume cash flows are reinvested at the cost of capital.
b.
NPV assumes cash flows are reinvested at the cost of capital, while IRR assumes
reinvestment at the IRR.
c.
IRR assumes cash flows are reinvested at the cost of capital, while NPV assumes
reinvestment at the IRR.
d.
Both NPV and IRR assume cash flows are reinvested at the IRR.
3.
If a project’s NPV is negative:
a.
the project earns less than the cost of capital.
b.
the investment will not add value or contribute to shareholder wealth.
c.
the present value of expected cash outflows is greater than the present value of expected
cash inflows.
d.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '10
 dffff
 Net Present Value

Click to edit the document details