Chapter 21 Test Bank

Chapter 21 Test Bank - CHAPTER 21 CAPITAL BUDGETING AND...

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CHAPTER 21 CAPITAL BUDGETING AND COST ANALYSIS TRUE/FALSE 1. Capital budgeting focuses on projects over their entire lives to consider all the cash flows or cash savings from investing in a single project. Answer : True Difficulty : 2 Objective : 1 Terms to Learn : capital budgeting 2. A capital budget spans only a one-year period. Answer : False Difficulty : 2 Objective : 1 Terms to Learn : capital budgeting A capital budget normally is for a period of time greater than one year. 3. The identification stage of capital budgeting explores alternative capital investments that will achieve the objectives of the organization. Answer : False Difficulty : 1 Objective : 2 Terms to Learn : capital budgeting This is the definition of the search stage. 4. The information-acquisition stage of capital budgeting considers the expected costs and the expected benefits of alternative capital investments. Answer : True Difficulty : 1 Objective : 2 Terms to Learn : capital budgeting 5. The selection stage of the capital budgeting process consists of choosing projects for possible implementation. Answer : True Difficulty : 1 Objective : 2 Terms to Learn : capital budgeting 6. Discounted cash flow methods measure all the expected future cash inflows and outflows of a project as if they occurred at equal intervals over the life of the project. Answer : False Difficulty : 2 Objective : 3 Terms to Learn : discounted cash flow (DCF) methods As if they occurred at a single point in time. 21-1
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7. Discounted cash flow methods focus on operating income. Answer : False Difficulty : 2 Objective : 3 Terms to Learn : discounted cash flow (DCF) methods Discounted cash flow methods focus on cash inflows and cash outflows. 8. The net present value method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the hurdle rate. Answer : True Difficulty : 2 Objective : 3 Terms to Learn : net present value (NPV) method, hurdle rate 9. Internal rate of return is a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time. Answer : False Difficulty : 2 Objective : 3 Terms to Learn : internal rate-of-return (IRR) method The internal rate of return calculates the discount rate at which the present value of expected cash inflows from a project equals the present value of expected cash outflows. 10. A capital budgeting project is accepted if the required rate of return equals or exceeds the internal rate of return. Answer : False Difficulty : 2 Objective : 3 Terms to Learn : required rate of return (RRR), internal rate-of-return (IRR) method A capital budgeting project is accepted if the internal rate of return equals or exceeds the required internal rate of return. 11.
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This note was uploaded on 02/27/2012 for the course ACCT 4121 taught by Professor Liu during the Spring '10 term at LSU.

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Chapter 21 Test Bank - CHAPTER 21 CAPITAL BUDGETING AND...

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