Ch 10- Practice MCQ's-Mgmt Acct

Why does capital budgeting rely on an analysis of cash flows rather than on net income? Base your answer on the accounting principles of recognizing and reporting revenue and expenses.Describe two capital budgeting decisions based on the time value of money. Which of the two methods would you select for a capital budgeting project and why?

Which of the following is not a capital budgeting technique? Select one: a. Net present value b. Discounted Payback period c. Payback Period d. Profitability index e. Ratio Analysis   Which capital budgeting projects are preferred? Select one: a. Lower payback period b. None of the option c. Higher payback period d. Lower cash inflow projects e. Average payback period

Help question 20

Which of the following decision measures should capital budgeting decision makers consider? Select one: a. discounted payback b. NPV c. IRR d. MIRR e. Although NPV is considered the most important method in the decision process, the other measures can provide different relevant information that is useful to the process and thus should be used when appropriate

Defining capital investments and the capital budgeting process Match each definition with its capital budgeting method. Methods 1. Accounting rate of return 2. Internal rate of return 3. Net present value 4. Payback Definitions a. Is only concerned with the time it takes to get cash outflows returned. b. Considers operating income but not the time value of money in its analyses. c. Compares the present value of cash outflows to the present value of cash inflows to determine investment worthiness. d. The true rate of return an investment earns.

Question 1 The payback period is often used to make capital budgeting decisions because it is considered easy to calculate and easy to understand. O True O False

22. If a capital budgeting project’s cash flows are not normal, the internal rate of return (IRR) method should be used to make the investment decision. Group of answer choices True False

Explain what a discounted cash flow method of making capital budgeting decisions is. Why are discounted cash flow methods superior to other methods? What are the risks related to using discounted cash flow methods? What a project profitability index? What does it measure? Why is it used? What is the primary criticism of the payback and simple rate of return methods of making capital budget decisions? What are the benefits in using these methods? Should companies continue to use these methods? Why or why not? What role, if any, should qualitative factors play in capital budgeting decisions? Explain your reasoning for your answer Discuss some of the major benefits to be gained from budgeting.

Defining capital investments and the capital budgeting process Match each definition with its capital budgeting method. Methods Accounting rate of return Internal rate of return Net present value Payback Definitions It is only concerned with the time it takes to get cash outflows returned. It considers operating income but not the time value of money in its analyses. Compares the present value of cash outflows to the present value of cash inflows to determine investment worthiness. The true rate of return an investment earns.

The capital budgeting method used to find the length of time required for an investment’s discounted cash flows to equal its initial cost is called the Blank______ method. Multiple choice question. accounting rate of return payback period discounted payback period net present value

Payback approach – What are the primary strengths and weaknesses of the payback approach in capital budgeting?

Which of the statements below is TRUE regarding capital budgeting? O A. Capital budgeting deals with how much to apportion spending on current assets. O B. Projects with NPVS greater than the IRR should be accepted. OC. We can find a project's NPV by simply taking the product of all of the project's undiscounted cash flows. O D. Ceteris paribus, a lower cost of capital would increase a project's NPV.

Capital Budgeting Problem What are some of the difficulties that might come up in actual applications of the various criteria we discussed in this chapter? Which one would be the easiest to implement in actual applications? The most difficult?

Give typing answer with explanation and conclusion

Opportunity Cost In the context of capital budgeting, what is an NG AND CONCEPTS REVIEW 9.2 Depreciation Gjyen the choice would a firm prefer to use MACRS 9.1 opportunity cost?

Which of the following is a problem with using discounted payback period for capital budgeting decisions arbitrary cutoff choice bias against short term projects in favor of long term projects time value of money conceptual violation

What is the most commonly used capital budgeting procedures? Select one: a. IRR b. Payback period c. Discounted Payback period d. NPV e. Profitability Index

Question 2: What factors should you keep in our mind as a financial manager when selecting methods of capital budgeting? and Why is rebalancing between methods of capital budgeting are important?

A. MULTIPLE CHOICE: Analyze the following questions and choose among the options which you think is the correct answer. Write the letter of your choice. (2 1. Which of the following capital budgeting techniques ignores the time value of money? (a) Payback. (b) Net present value. 2. Which of the following statements is false? (a) If the payback period is less than the maximum acceptable payback period, accept the project. (b) If the payback period is greater than the maximum acceptable payback period, reject the project. (c) If the payback period is less than the maximum acceptable payback period, reject the project (d) Two of the above. 3. Should Pharms company accept a new project if its maximum payback is 3.5 years and its initial cost is P5,000,000 and it is expected to provide operating cash inflows of P1,800,000 in year 1, P900,000 in year 2, P600,000 in year 3 and P1,800,000 in year 4? (а) Yes. (b) No. 4. What is the NPV for the following project if its cost of capital is 15…

1- What are the payback and discounted payback methods? What are their main weaknesses? 2- What are the five stages of capital budgeting? 3- What are strengths and weaknesses of the accrual accounting rate-of-return (AARR) method for evaluating long-term projects? 4- What are the relevant cash inflows and outflows for capital budgeting decisions? 5- What strategic considerations arise in the capital budgeting process?

QUESTION #1: Which of the following is a disadvantage of using the IRR method of capital budgeting over other types:   A- IRR does not consider the time and value of money.   B- IRR assumes reinvestment of project cash flows at the same rate as the IRR   C- IRR ignores the prudent simplicity of paybacks   D- None of the above   QUESTION #2: The net present value (NPV) of an investment is___________.   A- The present value of all benefits (cash inflows)   B- The present value of all costs (cash outflows) of the project   C- The present value of all benefits (cash inflows) minus the present value of all costs (cash outflows) of the project   D- The present value of all benefits (cash outflows) minus the present value of all costs (cash inflows) of the project

What is capital budgeting? Compare the advantages and disadvantages of various capital budgeting techniques. Do you think NPV is the best decision criterion and it can overcome the problems inherent in other methods? Justify your answer.

Which capital budgeting projects are ?preferred اخترأحد الخیارات a. Higher payback period O b. None of the option O c. Average payback period O d. Lower payback period O e. Lower cash inflow projects

A preference decision in capital budgeting: O is concerned with whether a project clears the minimum required rate of return hurdle. comes before the screening decision. O is concerned with determining which of several acceptable alternatives is best. O involves using market research to determine customers' preferences.

1. Concepts used in cash flow estimation and risk analysis You can come across different situations in your life where the concepts from capital budgeting will help you in evaluating the situation and making calculated decisions. Consider the following situation: The following table contains five definitions or concepts. Identify the term that best corresponds to the concept or definition given. Concept or Definition Term The specific cash flows that should be considered in a capital budgeting decision      A cost that has been incurred and may be related to a project but should not be part of the decision to accept or reject a project      The cash flows that the asset or project is expected to generate over its life      The effects on other parts of the firm      The cost of not choosing another mutually exclusive project by accepting a particular project        A successful sushi chain in Hong Kong spent $500,000 to conduct a study on whether to open…