HelpSave aSelect the Incorrect statement regarding postaudlts of capital Investment decislons.Multiple ChoiceA postaudit should be conducted at the end of the project.The postaudit helps management determine whether a project that had been accepted should have been rejected.A postaudit is only necessary for a capital investment selected using a technique that does not consider the time value of money.The goal ofa postaudit is to provide feedback that can be used to improve the accuracy of future capital investment decisions.

Post audit is an analysis of the outcome of a capital budgeting investment. This analysis is…

Answered: Select the Incorrect statement…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Select the incorrect statement regarding postaudits of capital investment decisions.A. The postaudit helps management determine whether a project that had been accepted should have been rejected.B. The goal of a postaudit is to provide feedback that can be used to improve the accuracy of future capital investment decisions.C. A postaudit is only necessary for a capital investment selected using a technique that does not consider the time value of money.D. A postaudit should be conducted at the end of the project.
Select the incorrect statement concerning the internal rate of return (IRR) method of evaluating capital projects. Multiple Choice A project whose IRR is more than the cost of capital should be rejected. The higher the IRR the better. The internal rate of return is that rate that makes the net present value equal to zero. If a project has a positive net present value then its IRR will exceed the hurdle rate.
Which of the following statements is (are) true about project appraisal methods: (i) NPV is the best measure for project appraisal even when capital is rationed. (ii) IRR measures percentage returns of an investment rather than added value. (iii) Contrary to real options, NPV assumes a now or never decision to invest.
Select all that are true with respect to the NPV rule for making capital investment decisions. Group of answer choices When done correctly, NPV directly measures expected value creation NPV ignores cash flows in the distant future NPV causes decision makers to be myopic For independent projects, all positive NPV projects should be taken, and negative NPV projects should not be taken For mutually exclusive projects, choose the project with the highest NPV
Required: (NOT IN EXCEL) (a) Calculate the payback period, accounting rate of return and net present value of each of thepotential projects.(b) Explain which of the three potential investment projects should be undertaken. Yourexplanation should be based on the results of your calculations in part (a).|(c) Critically discuss the approaches to investment appraisal used in part (a). As part of yourcritical evaluation, identify what additional information might be used to improve the approachto investment appraisal.
BETTER FORECASTING FOR LARGE CAPITAL PROJECTSLarge capital investments that are completed on schedule and within their budgets are probably the exception rather thanthe rule—and even when completed many fail to meet expected revenues. Executives often blame projectunderperformance on foreseeable complexities and uncertainties having to do with the scope of and demand for the project,the technology or project location, or even stakeholder opposition. No doubt, all of these factors at one time or anothercontribute to cost overruns, benefit shortfalls, and delays.But knowing that such factors are likely to crop up, why do project planners, on average, fail to forecast their effect on thecosts of complex projects? We’ve covered this territory before but continue to see companies making strategic decisionsbased on inaccurate data. Deliberately or not, costs are systematically underestimated, and benefits are overestimatedduring project preparation—because of delusions or honest mistakes on…
I asked this question before, but for some reason, even though it was answred I cannot see it, it marks an error when I try to open it. So here it is again: Comparing Investment Criteria. Define each of the following investment rules and discuss any potential shortcomings of each. In your definition, state the criterion for accepting or rejecting independent projects under each rule. a. Payback period. b. Internal rate of return. c. Profitability index. d. Net present value. Thank you!
Traditional NPV analysis usually does not address the decisions that managers have after a project has been accepted. In reality, capital budgeting and project management is typically dynamic, rather than static in nature and Real options exist Define Real Options Identify and explain two Real Options
An independent capital investment project requires an initial cash outflow at time 0, followed by cash inflows for times 1 to 3. Without knowing any of the figures involved, how will this project be appraised under NPV and IRR? The project will be rejected under NPV, but will be acceptable under IRR The NPV decision will be the same as the IRR decision (i.e. accept or reject the project) The project will be acceptable under NPV, but rejected under IRR The NPV decision will be the opposite of the IRR decision (i.e accept or reject the project)
Which capital budgeting technique step in the decision process is not used to evaluate a group of independent projects? Multiple Choice Compute the statistic. Have a runoff between the mutually exclusive projects choosing the one with the best statistic. Compare the computed statistic with the benchmark to decide to accept or reject the project. All of these choices are used.
Several proposed capital projects which are economically acceptable may have to be ranked due to constraints in financial resources. In ranking these projects, the least pertinent is this statement. A. A ranking procedure on the basis of quantitative criteria may be established by specifying a minimum desired rate of return, which rate is used in calculating the net present value of each project. B. In selecting the required rate of return, one may either calculate the organization’s cost of capital or use a rate generally acceptable in the industry. C. If the internal rate of return method is used in the capital rationing problem, the higher the rate, the better the project. D. If the net present value method is used, the profitability index is calculated to rank the projects. The lower the index, the better the project.
Suppose a company uses the NPV method, alongwith risk-adjusted WACCs, to calculate projectNPVs. However, it has not been considering realoptions in its capital budgeting decisions. Nowsuppose the company changes its capital budgeting process to take account of four types of realoptions investment timing, flexibility, growth,and abandonment. Would this decision be likelyto affect some of the calculated NPVs? Explainyour answer

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