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##### accounts test bank quiz

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Question;1.;If the internal rate of return;exceeds the required rate of return for a project, then the net present value;of that project is positive.;True False;2.;In comparing two investment;alternatives, the difference between the net present values of the two;alternatives obtained using the total cost approach will be the same as the net;present value obtained using the incremental cost approach.;True False;3.;The simple rate of return is the;same as the internal rate of return. True False;4.;The internal rate of return for a;project is the discount rate that makes the net present value of the project;equal to zero.;True False;5.;If two projects require the same;amount of investment, then the preference ranking computed using either the;project profitability index or the net present value will be the same.;True False;6.;In preference decisions, the;profitability index and internal rate of return methods may produce conflicting;rankings of projects.;True False;7.;The project profitability index is;used to compare the internal rates of return of two companies with different;investment amounts.;True False;8.;Preference decisions attempt to;determine which of many alternative investment projects would be the best for;the company to accept.;True False;9.;Projects with shorter payback;periods are always more profitable than projects with longer payback periods.;True False;10. One;criticism of the payback method is that it ignores cash flows that occur after;the payback point has been reached.;True False;11. A;very useful guide for making investment decisions is: The shorter the payback;period, the more profitable the project.;True False;12.;If new equipment is replacing old;equipment, any salvage received from sale of the old equipment should not be;considered in computing the payback period of the new equipment.;True False;13. The;simple rate of return focuses on accounting net operating income rather than on;cash flows. True False;14. The;simple rate of return method places its focus on cash flows instead of on;accounting net operating income.;True False;15.;If a company has computed the project;profitability index of an investment project as 0.15, then;A.;the project's internal rate of;return is less than the discount rate.;B.;the project's internal rate of;return is greater than the discount rate.;C.;the project's internal rate of;return is equal to the discount rate.;D.;the relation between the rate of;return and the discount rate is impossible to determine from the given data.;16. Spring;Company has invested $20,000 in a project. Spring's discount rate is 12% and;the project profitability index on the project is zero. Which of the following;statements would be true?;I.;The net present value of the;project is $20,000.;II.;The project's internal rate of;return is equal to 12%.;A.;Only I.;B.;Only II.;C.;Both I and II.;D.;Neither I nor II.;17. If;the internal rate of return is used as the discount rate in computing net;present value, the net present value will be;A.;positive.;B.;negative.;C.;zero.;D.;unknown.;18.;The discount rate must be specified in advance for;which of the following methods?;A.;Option A;B.;Option B;C.;Option C;D.;Option D;19. An;investment project for which the net present value is $300 would result in;which of the following conclusions?;A.;The net present value is too;small, the project should be rejected.;B.;The rate of return of the;investment project is greater than the required rate of return.;C.The;net present value method is not suitable for evaluating this project, the;internal rate of return method should be used.;DThe;investment project should only be accepted if net present value is zero, a;positive net present value.;indicates an error in the estimates associated with the analysis of this;investment.;20. In capital budgeting, what will be the effect;on the following if there is an increase in the working capital;needed for a project?;A.;Option A;B.;Option B;C.;Option C;D.;Option D;E.;Option E;21.;The capital budgeting method that;recognizes the time value of money by discounting cash flows over the life of;the project, using the company's required rate of return as the discount rate;is called the;A.;simple rate of return method.;B.;the net present value method.;C.;the internal rate of return;method.;D.;the payback method.;22.;The internal rate of return of an investment;project is the;A.;discount rate that results in a;zero net present value for the project.;B.;minimum acceptable rate of return.;C.;weighted average rate of return;generated by internal funds.;D.;company's cost of capital.;23.;If an investment has a project profitability index;of 0.15, then the;A.;project's internal rate of return;is 15%.;B.;discount rate is greater than the;project's internal rate of return.;C.;net present value of the project;is positive.;D.;the discount rate is 15%.;24. If;investment A has a payback period of 3 years and investment B has a payback;period of 4 years, then;A.;A has a higher net present value;than B.;B.;A has a lower net present value;than B.;C.;A and B have the same net present;value.;D the;relation between investment A's net present value and investment B's net;present value cannot be. determined from the given information.;25.;Which one of the following statements about the;payback method of capital budgeting is correct?;A.;The payback method does not;consider the time value of money.;B.;The payback method considers cash;flows after the payback has been reached.;C.;The payback method uses discounted;cash flow techniques.;D.;The payback method will lead to;the same decision as other methods of capital budgeting.;26.;The length of time required to recover the initial;cash outlay for a project is determined by using the;A.;discounted cash flow method.;B.;the payback method.;C.;the net present value method.;D.;the simple rate of return method.;27. (Ignore;income taxes in this problem.) An investment of P dollars now will yield cash;inflows of $3,000 at the end of the first year and $2,000 at the end of the;fourth year. If the internal rate of return for this investment is 20%, then;the value of P is;A.;$3,463;B.;$2,499;C.;$964;D.;$4,185;28.;(Ignore income taxes in this problem.) The Baker;Company purchased a piece of equipment with the;following;expected results: The initial cost of the equipment was;A.;$300,100;B.;$180,250;C.;$190,600;D.;Cannot be determined from the;given information.;29.;(Ignore income taxes in this;problem.) The Yates Company purchased a piece of equipment which is expected to;have a useful life of 7 years with no salvage value at the end of the 7-year;period. This;equipment is expected to generate;a cash inflow of $32,000 each year of its useful life. If this investment has a;internal rate of return of 14%, then the initial cost of the equipment is;A.;$150,000;B.;$137,216;C.;$12,800;D.;$343,360;30. (Ignore;income taxes in this problem.) The following information is available on a new;piece of equipment;The life of the equipment is;approximately;A.;6 years;B.;4.3 years;C.;8 years;It;is impossible to determine from the data given.

Paper#42656 | Written in 18-Jul-2015

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