Deck 7: The Investment Decision

Question 1

The component(s) of a capital investment decision are:

A) Determining if the investment is worth while
B) Costs of investing
C) Determining how to finance the investment
D) Both a & c

Answer 1

Both a & c

Question 2

Capital appreciation is:

A) The portion of the profits the company keeps
B) When an investment is worth more when it is sold than when it was purchased
C) An increase in liabilities
D) None of the above

Answer 2

When an investment is worth more when it is sold than when it was purchased

Question 3

The strength(s) of the NPV analysis are:

A) Answers in dollars, not years
B) Accounts for all cash flows in the project
C) Discounts at the cost of capital
D) All of the above

Answer 3

All of the above

Question 4

The three methods of evaluating large-dollar multiyear investment decisions from Chapter 7 are:

A) Payback, net present value and internal rate of reduction
B) Payoff, net present value and internal rate of return
C) Payback, net present value and internal rate of return
D) Payback, net present variables and internal return rate

Question 5

If the IRR is equal to the required rate of return the project should be:

A) Accepted
B) Rejected
C) Handled indifferently
D) Reinvented

Question 6

Straight-line depreciation is a method that depreciates an asset a(n)__________________ amount each______________________ until it reaches its salvage value.

A) Varied, quarter
B) Equal, day
C) Varied, year
D) Equal, year

Question 7

Sunk costs are:

A) Recoverable
B) Not recoverable
C) Indicators of future gains
D) Management's poor decisions

Question 8

Spreadsheets are ideal for which method?

A) NPV
B) Payback
C) IRR
D) None of the above

Question 9

The payback method measures how long it will take to recover____________ investment.

A) Total
B) Past
C) Initial
D) Non-financial

Question 10

The exact cost of capital is___________________ to determine.

A) Difficult
B) Easy
C) Impossible
D) Time consuming

Question 11

A capital investment is expected to achieve long-term benefits for the organization that generally fall into three categories: financial benefits, nonfinancial returns and the ability to attract more funds in the future.

Question 12

Dividends are payments to creditors.

Question 13

The payback method is in years, not dollars.

Question 14

The payback method does account for the time value of money.

Question 15

IRR analysis assumes reinvestment of proceeds at the internal rate of return.

Question 16

NPV is calculated using ten steps.

Question 17

Goodwill is tangible assets that will be affected by an entities future earnings.

Question 18

Discounted cash flows are adjusted to account for the cost of capital.

Question 19

If the IRR is less than the required return rate, the project should be accepted.