Accy 24 multiple choice – Flashcards
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The calculation of annual net cash flow from a particular investment project should include all of the following except:
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Depreciation expense.
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The process of restating future cash flows in today's dollars is known as:
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Discounting.
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A company's required rate of return, typically its cost of capital is called the:
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Hurdle rate.
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In business decision-making, managers typically examine the two fundamental factors of:
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Risk and return.
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A limitation of the internal rate of return method is that it:
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Ignores varying risks over the life of a project.
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The break-even time (BET) method is a variation of the:
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Payback method.
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The calculation of the payback period for an investment when net cash flow is even (equal) is:
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Cost of investment/Annual net cash flow
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Capital budgeting decisions usually involve analysis of:
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Long-term investments only.
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Capital budgeting decisions are generally based on:
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Tentative predictions of future outcomes.
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The net cash flow of a particular investment project:
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Does not include depreciation.
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Which of the following is an objective of capital budgeting?
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To earn a satisfactory return on investment.
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The time value of money concept:
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Means that a dollar today is worth more than a dollar tomorrow.
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A minimum acceptable rate of return for an investment decision is called the:
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Hurdle rate of return.
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The rate that yields a net present value of zero for an investment is the:
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Internal rate of return.
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Which methods of evaluating a capital investment project ignore the time value of money?
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Payback period and accounting rate of return.
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Which methods of evaluating a capital investment project use cash flows as a measurement basis?
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Payback period, internal rate of return, and net present value.
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The internal rate of return method is not subject to the limitations of the net present value method when comparing projects with different amounts invested because:
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The internal rate of return is expressed as a percent rather than the absolute dollar value of present value.
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The break-even time (BET) method is a variation of the:
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Payback method.
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If a manager were concerned with the time value of money, from which two capital budgeting methods should the manager choose?
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BET or IRR.
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The calculation of the payback period for an investment when net cash flow is even (equal) is:
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(Cost of investment)/(Annual net cash flow)
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After-tax net income divided by the average amount invested in a project, is the:
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Accounting rate of return.
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The accounting rate of return is calculated as:
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The after-tax income divided by the annual average investment.
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An estimate of an asset's value to the company, calculated by discounting the future cash flows from the investment at the project's required rate of return and then subtracting the initial amount of the investment, is known as:
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Net present value.
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Which of the following cash flows is not considered when using the net present value method?
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Past cash outflows.
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Which one of the following methods considers the time value of money in evaluating alternative capital expenditures?
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Net present value.
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The hurdle rate is often set at:
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The company's cost of capital.
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Capital budgeting is the process of analyzing:
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Long-term investments.
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The process of analyzing alternative long-term investments and deciding which assets to acquire or sell is known as:
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Capital budgeting.
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Capital budgeting decisions are risky because all of the following are true except:
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They rarely produce net cash flows.
