**** PLEASE ANSWER ALL OF THE QUESTIONS****
1. Which of the following is correct?
A. All capital budgeting methods produce the same decision andtheir use is based on the information available.
B. Payback period ignores the cash flows after the originalinvestment is recovered.
C. The accounting rate of return method considers the time valueof money.
D. The cost of capital is the company’s desired rate ofreturn.
2. Which of the following capital budgeting methods uses accrualaccounting rather than net cash flows, as a basis forcalculations?
A. Payback method
B. Internal rate of return
C. Net present value
D. Accounting rate of return
3. Which of the following may be useful when comparing potentialinvestments of different sizes?
A. Accounting rate of return
B. Profitability index
C. Future value of net cash inflows
D. Payback method
4. The internal rate of return is:
A. the interest rate at which the net present value of theinvestment equals the cost of the investment.
B. the interest rate at which the net present value of theinvestment exceeds the company’s desired rate of return.
C. equal to the accounting rate of return.
D. none of the above
5. Which of the following capital budgeting methods ignores thetime value of money?
A. Accounting rate of return
B. Internal rate of return
C. Net present value
D. Profitability index
6. Eagle Corporation is considering the purchase of a newmachine. The machine cost $550,000 and will generate an annual netcash inflow of $100,000. What is the payback period?
A. 4 years and 6 months
B. 5 years
C. 5 years and 6 months
D. 6 years and 1 month
7. Cardinal Company purchased a new machine for $125,000. Themachine will last eight years and will be depreciated using thestraight-line method. The estimated residual value of the machineis zero and should generate a yearly cash inflow of $30,000.Ignoring taxes, what is the accounting rate of return?
A. 3.65%
B. 11.50%
C. 23.00%
D. 24.00%
8. Which of the following decision rules is a correctstatement?
A. If the net present value is positive, do not invest in thecapital asset.
B. If the internal rate of return is less than the required rateof return, invest in the asset.
C. Investments with longer payback periods are more desirable,all else being equal.
D. If the net present value is positive, invest in the capitalasset.
9. Which of the following is NOT a factor when considering thetime value of money?
A. The interest rate
B. The principal amount
C. The payback period
D. The number of periods
10.The final step in the capital budgeting process is to:
A. identify potential capital investments.
B. engage in capital rationing, if necessary, to choose amongalternative investments.
C. utilize decision rules when screening out undesirableinvestments.
D. perform post-audits after making capital investments.
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