If erika lee invests 5000 in a certificate of deposit

99. If Erika Lee invests $5,000 in a certificate of deposit that pays 5%, compounded annually, what
amount will she have in 10 years?
a. $8,954
b. $8,144
c. $12,969
d. $7,401
w 100. The time value of money is taken in account when calculating
I. Mortgage payments
II. Car payments
III. Future values of savings accounts
101. (Appendix 12A) The risk premium for a particular project is
w 102. The most appropriate method(s) for long term decisions
103. (CMA) The net present value (NPV) method of investment project analysis assumes that the
project’s cash flows are reinvested at the
a. Computed internal rate of return
b. Risk-free interest rate
c. Discount rate used in the NPV calculation
d. Firm’s accounting rate of return

Chapter 12: Strategic Investment Decisions 12-19
Use the following information for the next 3 questions.
Capital Invest, Inc. uses a 12% hurdle rate for all capital expenditures and has done the following analysis
for four projects for the upcoming year.
Project 1 Project 2 Project 3 Project 4
Initial capital outlay $200,000 $298,000 $248,000 $272,000
Annual cash inflows:
Year 1 $65,000 $100,000 $880,000 $95,000
Year 2 70,000 135,000 95,000 125,000
Year 3 80,000 90,000 90,000 90,000
Year 4 40,000 65,000 80,000 60,000
Net present value (3,789) 4,276 14,064 14,662
Profitability Index 0.98 1.01 1.06 1.05
Internal rate of return 11% 13% 14% 15%
w 104. (CMA) Which projects should Capital Invest, Inc. undertake during the upcoming year assuming it
has no budget restrictions?
105. (CMA) Which project(s) should Capital Invest, Inc. undertake during the upcoming year if it has
only $600,000 of funds available?
106. (CMA) Which project(s) should Capital Invest, Inc. undertake during the upcoming year if it has
only $300,000 of capital funds available?
Matching
1. The steps in making capital budgeting decisions are listed below. Number the steps in the correct
order (1 through 6).
____ A. Apply one or more quantitative analysis techniques
____ B. Consider qualitative and quantitative information and make a decision
____ C. Identify and analyze qualitative factors
____ D. Identify decision alternatives
____ E. Identify relevant cash flows
____ F. Perform sensitivity analysis

12-20 Cost Management