29. Which one of the following statements is correct regarding capital Investment appraisal methods? a) The Payback period takes into account all the cash flows accruing to the project b) The Net Present value method does not take the time value of money into account c) The Accounting Rate of Return takes the time value of cash flows into consideration and is the one most often used in practice by business organisations d) The Internal Rate of Return is the discount rate at which the net present value is zero

29. Which one of the following statements is correct regarding capital Investment appraisal methods? a) The Payback period takes into account all the cash flows accruing to the project b) The Net Present value method does not take the time value of money into account c) The Accounting Rate of Return takes the time value of cash flows into consideration and is the one most often used in practice by business organisations d) The Internal Rate of Return is the discount rate at which the net present value is zero

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 3MC: The third step for making a capital investment decision is to establish baseline criteria for...

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The third step for making a capital investment decision is to establish baseline criteria for alternatives. Which of the following would not be an acceptable baseline criterion? A. payback method B. accounting rate of return C. internal rate of return D. inventory turnover
be appropriate? Explain. 8.4 Average Accounting Return Concerning AAR: LO 2 Describe how the average accounting return is usually calculated and describe the information this measure provides about a sequence of cash flows. What is the AAR criterion decision rule? a. b. What are the problems associated with using the AAR as a means of evaluating a project's cash flows? What underlying feature of AAR is most troubling to you from a financial perspective? Does the AAR have any redeeming qualities?
1. Discuss the reasons why capital rationing may arise 2. Discuss the meaning of the term “relevant cash flow” in the context of investment appraisal, giving examples to illustrate your discussion.
Methods that ignore the time value of money in capital investment appraisal include which of the following? a. Net present valueb. Discounted payback c. Average rate of return d. All of the above
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Profitability index. It is a ratio that provides information about the present value of net cash flows to the net investment. It provides a measure of the relative present value return for each dollar of initial investment. Discuss its usefulness. Should managers rely upon it? Consider its usefulness in a capital rationing situation (capital investment under conditions of financial restraint).
Which of the following methods for evaluating capital investment proposals reduces the expected future net cash flows originating from the proposals to their present values and computes a net present value? a. average rate of return b. net present value c. internal rate of return d. cash payback
Consider the following statements concerning the payback method of investment appraisal: 1. It completely ignores the timing of future cash flows. 2. It requires managers to determine an appropriate payback period. Which of these statements is/are correct? A. 1 only B. Neither 1 nor 2 C. 1 and 2 D. 2 only
What refers to the way the company’s assets are financed and includes both long-term as well as short-term sources of funds Select one: a. Profit b. None of the option c. Capital structure d. Working Capital e. Capital Budgeting
Which one of the following could be considered as an advantage of using the payback method of investment appraisal? Select one: O A. Cash flows rising after the payback period is reached are ignored O B. It is easy to understand and simple to calculate O C. Does not take risk fully into account O D. Not related to wealth maximisation objective
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.
NPV measures a. the change in firm value b. the profitability of an investment c. the change in wealth d. the present value of the future net cash flows from the investment e. all of the above