The net present value and internal rate of return methods of capital budgeting are superior
to the payback method in that they:
A)
are easier to implement.
B)
consider the time value of money.
C)
require less input.
D)
reflect the effects of depreciation and income taxes.
2.
(Ignore income taxes in this problem.) The following data pertain to an investment in
equipment:
Investment in the project
$10,000
Net annual cash inflows
2,400
Working capital required
5,000
Salvage value of the equipment
1,000
Life of the project
8 years
At the completion of the project, the working capital will be released for use elsewhere.
Compute the net present value of the project, using a discount rate of 10%:
A) $606.
B) $8,271.
C) ($1,729).
D) $1,729.
3.
(Ignore income taxes in this problem.) The following data pertain to an investment
proposal:
Present investment required
$26,500
Annual cost savings
$ 5,000
Projected life of the investment
10 years
Projected salvage value
$ 0
The internal rate of return, interpolated to the nearest tenth of a percent, would be:
A) 11.6%.
B) 12.8%.
C) 13.6%.
D) 12.4%.
4.
(Ignore income taxes in this problem.) The following data pertain to an investment
proposal:
Investment in the project (equipment)
$14,000
Net annual cash inflows promised
2,800
Working capital required
5,000
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 Spring '11
 mac
 Working Capital, Net Present Value, capital budgeting decisions, multiple choice difﬁculty

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