Multiple Choice Questions 1. Capital investments should a. Always produce an increase in market…

Multiple Choice Questions 1. Capital investments should a. Always produce an increase in market share. b. Only be analyzed using the ARR. c. Earn back their original capital outlay. d. Always be done using a payback criterion. e. Do none of these. 2. To make a capital investment decision, a manager must a. Estimate the quantity and timing of cash flows. b. Assess the risk of the investment. c. Consider the impact of the investment on the firm’s profits. d. Choose a decision criterion to assess viability of the investment (such as payback period or NPV). e. Do all of these. 3. Mutually exclusive capital budgeting projects are those that a. If accepted or rejected do not affect the cash flows of other projects. b. If accepted will produce a negative NPV. c. If rejected preclude the acceptance of all other competing projects. d. If accepted preclude the acceptance of all other competing projects. e. If rejected imply that all other competing projects have a positive NPV. 4. An investment of $ 1,000 produces a net annual cash inflow of $ 2,000 for each of five years. What is the payback period? a. Two years b. One- half year c. Unacceptable d. Three years e. Cannot be determined 5. An investment of $ 1,000 produces a net cash inflow of $ 500 in the first year and $ 750 in the second year. What is the payback period? a. 1.67 years b. 0.50 year c. 2.00 years d. 1.20 years e. Cannot be determined 6





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