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- 1. Multiple Choice
Capital budgeting is a decision-making process of selecting both short-term and long term investments.
True
False
- 2. Multiple Choice
The initial investment is the immediate cash outflow necessary to purchase the asset and put it into operating order.
True
False
- 3. Multiple Choice
One disadvantage of the payback period method is it ignores time value of money.
True
False
- 4. Multiple Choice
Profitability index is one of the discounted cash flow methods.
True
False
- 5. Multiple Choice
If the NPV is positive, the project's cost is more than its expected benefits.
True
False
- 6. Multiple Choice
Which of the following statements regarding NPV is true?
If NPV is positive, the project is expected to earn more than the firm's cost of capital.
Accepting negative NPV projects will reduce shareholders' wealth.
If the NPV is positive, the project's cost is less than the project's expected benefit.
All of the above.
- 7. Multiple Choice
The following are the advantages of net present value, EXCEPT
it can be used as a rough screening device to eliminate those projects whose returns do not materialize until later years.
all positive NPVs will increase the value of the firm
it allows comparison of benefits and costs in a logical manner
it recognizes the timing of benefits resulting from the project
- 8. Multiple Choice
When selecting the best project from a group of mutually exclusive projects, you should choose the project with the highest ________.
net present value
internal rate of return
accounting rate of return
payback period
- 9. Multiple Choice
A significant advantage of the net present value is that it _______.
fully considers time value of money
takes into consideration the yield to maturity
usus profit in the analysis
none of the above
- 10. Multiple Choice
Which of the following statement about NPV is FALSE?
It does not allow for projects to be ranked.
It has an inadequate reinvestment assumption.
It is likely that there will be more than one NPV for a project.
All of the above
- 11. Multiple Choice
The difference between the present value of an investment and its cost is the _______.
IRR
NPV
payback period
profitability index
- 12. Multiple Choice
The present value of an investment's future cash flows divided by the initial cost of the investment is called the _______.
NPV
IRR
profitability index
payback period
- 13. Multiple Choice
Which of the following statement regarding NPV is true?
An investment should be accepted if, and only if, the NPV equals the initial investment.
An investment should be accepted if, and only if, the NPV equals zero.
An investment should be accepted if the NPV is positive and rejected if it is negative
An investment with greater cash inflows than cash outflows, regardless of when the cash flows occur, will always have a positive NPV and therefore should always be accepted.
- 14. Multiple Choice
You are analyzing two mutually exclusive projects of similar size and have determined the following data. Both projects have 5-year lives.
Based on the above details, which of the two projects would you accept?
Project A because it has the shortest payback period.
Both as they both have positive NPV.
Project B and reject Project A nased on their NPVs.
- 15. Multiple Choice
Determine the payback period for a RM20,000 project that is expected to return RM6,000 for the first two years and RM3,000 for years 3 through 5.
3.5 years
4.5 years
4.67 years
5 years
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