Chapter 9--Capital Budgetin - Copy

Chapter 9--Capital Budgetin - Copy - Chapter 9-Capital...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 9--Capital Budgeting Techniques Chapter 9--Capital Budgeting Techniques Student: ___________________________________________________________________________ 1. Beyond some point, a further increase in the size of the firm's total capital budget may lead to a decrease in the NPVs of all the investments being considered. True False 2. The primary function of the capital budget is to forecast the funds required for future investments that must be raised through external funding, that is, by selling stock or bonds. True False 3. One advantage of the payback period method of evaluating fixed asset investment possibilities is that it provides a rough measure of a project's liquidity and risk. True False 4. The modified IRR (MIRR) method has wide appeal to professors, but most business executives prefer the NPV method to either the regular or modified IRR. True False 5. The internal rate of return is that discount rate which equates the present value of the cash outflows (or costs) with the present value of the cash inflows. True False 6. Under certain conditions, a particular project may have more than one IRR. One condition under which this situation can occur is if, in addition to the initial investment at time = 0, a negative cash flow occurs at the end of the project's life. True False
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
7. Other things held constant, an increase in the required rate of return will result in a decrease of a project's IRR. True False 8. The IRR of a project whose cash flows accrue relatively rapidly is more sensitive to changes in the discount rate than is the IRR of a project whose cash flows come in more slowly. True False 9. If a project's NPV exceeds the project's IRR, then the project should be accepted. True False 10. Conflicts between two mutually exclusive projects, where the NPV method chooses one project but the IRR method chooses the other, should generally be resolved in favor of the project with the higher NPV. True False 11. Although the payback method ignores the time value of money, relying solely on this capital budgeting method will always lead to value maximizing decision. True False 12. Using the discounted payback method, a project should be accepted when the discounted payback is greater than the projects expected life. True False 13. A capital budgeting project is acceptable if the rate of return required for such a project is greater than the project's internal rate of return. True False 14. The post-audit two main purposes are to improve forecasts and to improve operations. True False
Background image of page 2
15. Any capital budgeting investment rule should depend solely on forecasted cash flows and the opportunity rate of return. The rule itself should not be affected by managers' tastes, the choice of accounting method, or the profitability of other independent projects. True False
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 46

Chapter 9--Capital Budgetin - Copy - Chapter 9-Capital...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online