In proper capital budgeting analysis we evaluate incremental a. Accounting income. b. Cash flow. c. Earnings. d. Operating profit. Capital Budgeting is a part of: (a)Investment Decision (b) Working Capital Management (c) Marketing Management (d) Capital Structure A project’s average net income divided by its average book value is referred to as the project’s average: A. net present value. B. internal rate of return. C. accounting return. D. profitability index. E. payback period. The internal rate of return is defined as the: A. maximum rate of return a firm expects to earn on a project.

B. rate of return a project will generate if the project in financed solely with internal funds. C. discount rate that equates the net cash inflows of a project to zero. D. discount rate which causes the net present value of a project to equal zero. E. discount rate that causes the profitability index for a project to equal zero. Which two methods of project analysis were the most widely used by CEO’s as of 1999? A. net present value and payback B. internal rate of return and payback C. net present value and average accounting return D. internal rate of return and net present value E. ayback and average accounting return The length of time a firm must wait to recoup, in present value terms, the money it has in invested in a project is referred to as the: A. net present value period. B. internal return period. C. payback period. D. discounted profitability period. E. discounted payback period. Capital Budgeting deals with (a) Long-term Decisions (b) Short-term Decisions (c) Both (a) and (b) (d) Neither (a) nor (b) A project’s average net income divided by its average book value is referred to as the project’s average: A. net present value. B. internal rate of return.

C. accounting return. D. profitability index. E. payback period The present value of an investment’s future cash flows divided by the initial cost of the investment is called the: A. net present value. B. internal rate of return. C. average accounting return. D. profitability index. E. profile period. The profitability index is most closely related to which one of the following? A. payback B. discounted payback C. average accounting return D. net present value E. modified internal rate of return Which of the following ignores the time value of money? a) Internal rate of return ) Profitability index c) Net present value d) payback Which of the following represents the linear relation between Net Present Value (NPV) and Profitability Index (PI)? A) If Profitability Index > 1, NPV is Negative (-) B) If Profitability Index < 1, NPV is Positive (+) C) If Profitability Index > 1, NPV is Positive (+) D) If Profitability Index > 1, NPV is Zero (0) If the NPV form a project is positive it must be that a. the discounted payback period is longer than the useful life of the project. b. the internal rate of return is lower than the discount used. . the project is not acceptable on a risk adjusted basis. d. this project is preferred to any other mutually exclusive project. e. accepting the project increases the value of the firm. The profitability index is computed by dividing the a. total cash flows by the initial investment. b. present value of cash flows by the initial investment. c. initial investment by the total cash flows. d. initial investment by the present value of cash flows. The primary capital budgeting method that uses discounted cash flow techniques is the a) net present value method. b) payback technique. ) annual rate of return method. d) profitability index method . The internal rate of return (IRR) is: A. The same thing as the discount rate. B. The same thing as the cost of capital. C. The discount rate that equates the present values of in? ows and out? ows. D. The same thing as the net present value. E. The ratio of average annual pro? ts to average investments. An investment will be _________ if the IRR doesn’t exceeds the required return and _________ otherwise. A) Accepted; rejected B) Accepted; accepted C) Rejected; rejected D) Rejected, accepted