Group 2 Lesson 4

When firm cannot observe a market price for at least a roughly comparable investment, capital budgeting is made difficult, then the firm use ........

• discounted cash flow valuation

• net present value

• pay back period

• internal rate of return

Should you invest in a short term project that will yield NPV = $1,035.59?

• Yes because the IRR > 0

• Yes because the NPV > 0

• No because the IRR > 0

• No because the NPV > 0

The amount of time required for an investment to generate cash flows to recover its initial costs is called ........

• net present value

• discount rate

• payback period

• internal rate of return

Average Book Value, when straight line depreciation if used as .........

• (cost / salvage) / 2

• (cost * salvage) / 2

• (cost - salvage) / 2

• (cost + salvage) / 2

When ARR explains as $90,000; AAR = 0.21; Target AAR. 0.3.

• reject because AAR > target AAR

• reject because ARR < target AAR

• accept because AAR > target AAR

• accept because AAR < target AAR

IRR is sometimes known as ........

• net present return

• net present yield

• discounted rate of return

• discounted cash flow yield

Accept investment when ........

• IRR > RRR

• IRR < RRR

• NPV > IRR

• NPV < RRR

NPV = 0 meaning .........

• indifferent (RRR> IRR)

• indifferent (RRR = IRR)

• indifferent (RRR< IRR)

• none is correct

The amount of time required for an investment to generate cash flows to recover its initial costs is called ........

• net present value

• future value

• payback period

• internal rate of return

What is the disadvantage for payback period?

• easy to understand

• ignores cash flows beyond the cutoff date

• cost to do this analysis is minimal

• Adjusts for uncertainty of later cash flows