Question 1

A capital budgeting project will have a positive net present value if its return is less than the hurdle rate.

Accepted Answer

A capital budgeting project will have a positive net present value only if its return is greater than the hurdle rate. The hurdle rate represents the minimum required rate of return for a project to be acceptable, so the project must generate returns higher than the hurdle rate in order to be profitable.

Question 2

Identify capital expenditures relevant to accomplishing strategic goals is the first step in the capital budgeting decision process model.

Accepted Answer

The first step in the capital budgeting decision process model is to identify capital expenditures that are relevant to achieving strategic goals.

Question 3

The time value of money
A) is equal to the rate of inflation.
B) includes the rate of inflation.
C) is the same value for all companies.
D) is equal to the bank prime rate.
E) is the opportunity cost of not having the money today.

Accepted Answer

The time value of money refers to the fact that money today is worth more than the same amount of money in the future, due to the potential for earning interest or other returns. Therefore, the opportunity cost of not having the money today (i.e. the potential returns that could be earned by investing it) is the best reflection of the time value of money.

Question 4

Discounted cash flow measures the cash inflows and outflows of a project as if they occurred at a single point in time in order to facilitate a proper comparison.

Accepted Answer

The answer of Discounted cash flow measures the cash inflows...

Question 5

Cost analysis has two dimensions, which are
A) financial and non-financial.
B) present and the future.
C) project and financial.
D) project and non-financial.
E) project and time.

Accepted Answer

The answer of Cost analysis has two dimensions, which are
A)...

Question 6

The consequences of capital expenditures are
A) quantitative and financial.
B) quantitative and qualitative.
C) qualitative and nonfinancial.
D) appropriate and inappropriate.
E) nonfinancial and irrelevant.

Accepted Answer

Capital expenditures have both quantitative (measurable) and qualitative (non-measurable) consequences. Quantitative consequences include financial outcomes such as increased profits or return on investment, while qualitative consequences may include improved quality or productivity.

Question 7

The net present value method is a discounted cash flow method that concentrates only on cash flows.

Accepted Answer

The net present value method is a discounted cash flow method that takes into account the time value of money and calculates the present value of cash inflows and outflows. It does not consider non-cash items such as depreciation or amortization.

Question 8

In capital budgeting decisions, revenues and costs are analyzed over the short-run.

Accepted Answer

Capital budgeting decisions involve analyzing the revenues and costs over a long-term period, typically several years. The goal is to determine whether investing in a particular project will be profitable and generate positive cash flows over its useful life. Short-term analysis may be considered as part of the decision-making process, but it is not the primary focus.

Question 9

Discounted cash flow methods focus on operating income.

Accepted Answer

The answer of Discounted cash flow methods focus on operating...

Question 10

Cost systems with an exclusive period-by-period focus are more likely to identify project costs over multiple periods.

Accepted Answer

Cost systems with an exclusive period-by-period focus are more likely to only identify project costs for the current period and may not accurately capture costs that span multiple periods. Systems that take a more comprehensive view of costs, such as activity-based costing, are better equipped to identify project costs over multiple periods.

Question 11

Which of the following is not a part of the capital budgeting decision process model?
A) establish assumptions common for each potential capital investment
B) obtain appropriate sources of financing for investments
C) identify capital expenditures relevant to accomplishing strategic goals
D) manage the control of non-quantitative factors
E) analyze the present value of future cash inflow and outflow and relevant qualitative factors

Accepted Answer

The answer of Which of the following is not a...

Question 12

Both financial and nonfinancial factors associated with proposed capital budgeting opportunities need to be considered as part of the capital budgeting decision process.

Accepted Answer

This statement is true. When evaluating a capital budgeting opportunity, both financial factors such as expected return on investment, cash flows, and cost of capital, as well as nonfinancial factors such as market trends, competition, and social impact, must be taken into account in order to make an informed decision.

Question 13

The rate of return is the ratio of net future cash flows to the investment outflow.

Accepted Answer

The rate of return is calculated by dividing the net future cash flows by the initial investment, so the statement is true.

Question 14

Accrual accounting measures income on a year-to-year basis.

Accepted Answer

Accrual accounting records revenue and expenses when they are earned/incurred, regardless of when the cash is received/paid, and calculates income on a year-to-year basis.

Question 15

The net present value method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the hurdle rate.

Accepted Answer

This is an accurate description of the net present value method.

Question 16

Capital budgeting emphasizes the role of financial information in investment decisions.

Accepted Answer

Capital budgeting involves analyzing and evaluating investment options based on financial information such as expected cash flows, return on investment, and cost of capital. Therefore, the statement is true.

Question 17

Capital budgeting focuses on projects over their entire lives to consider all the cash flows or cash savings from investing in a single project.

Accepted Answer

Capital budgeting involves evaluating the long-term profitability and feasibility of investing in a particular project. It takes into account all the cash inflows and outflows over the life of the project to determine its potential value and whether the investment is worthwhile. Therefore, the statement is true.

Question 18

Discounted cash flow methods measure all the expected future cash inflows and outflows of a project as if they occurred at equal intervals over the life of the project.

Accepted Answer

The answer of Discounted cash flow methods measure all the...

Question 19

Life cycle costing is the accounting system that corresponds to
A) the non-financial dimension of costs analysis.
B) the project dimension of costs analysis.
C) the cost dimension of costs analysis.
D) the financial dimension of costs analysis.
E) the time dimension of costs analysis.

Accepted Answer

The answer of Life cycle costing is the accounting system...

Question 20

The required rate of return is the minimum acceptable percentage return on an investment before taking into account the risk of the investment.

Accepted Answer

The required rate of return includes compensation for the risk of the investment, not just the minimum acceptable return.

Quiz 21: Capital Budgeting: Methods of Investment Analysis