Level of Difficulty: 2Learning Goal: 6Topic: NPV versus IRR59.In spite of the theoretical superiority of NPV, financial managers prefer to use IRR.

Level of Difficulty: 2Learning Goal: 6Topic: NPV versus IRR60.In spite of the theoretical superiority of IRR, financial managers prefer to use NPV.

Level of Difficulty: 2Learning Goal: 6Topic: NPV versus IRRMultiple Choice Questions1.Examples of sophisticated capital budgeting techniques include all of the following EXCEPT

Level of Difficulty: 1Learning Goal: 2Topic: Capital Budgeting Techniques

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Chapter 9Capital Budgeting Techniques1362.The _________ is the exact amount of time it takes the firm to recover its initial investment.(a)average rate of return(b)internal rate of return(c)net present value(d)payback periodAnswer: D

Level of Difficulty: 1Learning Goal: 2Topic: Payback Method3.Unsophisticated capital budgeting techniques do not

Level of Difficulty: 2Learning Goal: 2Topic: Capital Budgeting Techniques4.All of the following are weaknesses of the payback period EXCEPT

Level of Difficulty: 2Learning Goal: 2Topic: Payback Method5.Among the reasons many firms use, the payback period as a guideline in capital investment decisions are all of the following EXCEPT

Level of Difficulty: 3Learning Goal: 2Topic: Payback Method

137Gitman •Principles of Finance,Eleventh Edition6.Payback is considered an unsophisticated capital budgeting technique, and as such(a)gives no consideration to the timing of cash flows and therefore the time value of money.(b)gives no consideration to risk exposure.(c)does consider the timing of cash flows and therefore gives explicit consideration to the time value of money.(d)gives some implicit consideration to the timing of cash flows and therefore the time value of money.Answer: D

Level of Difficulty: 3Learning Goal: 2Topic: Payback Method