Question

Question 1:All of the following are considered cash inflows except the:

A. future residual value of the capital investment

B. future additional operating costs of the investment

C. future savings in ongoing cash operating costs

D. future cash revenue generated by the investment

Question 2:Capital budgeting methods which incorporate the time value of money include the

A. average rate of return

B. accounting rate of return

C. net present value method

D. payback method

Question 3: Net present value is defined as the difference between the present value of the? investment's net cash inflows and the? investment's initial cost.

A. True

B. False

Question 4: Which of the following best describes the internal rate of? return?

A.the rate at which the profitability of an investment increases

B.interest rate that makes the net present value of the investment equal to zero

C.discount rate that is used to evaluate funds borrowed from a lender for profitability

D.the ratio of average annual income to average amount invested

Answer 1

1.) The following are considered cash inflows except the:

B. future additional operating costs of the investment - This is an outflow.

2) Capital budgeting methods which incorporate the time value of money include the:

C. net present value method

3) Net present value is defined as the difference between the present value of the investment's net cash inflows and the investment's initial cost.

A. True

4) The following best describes the internal rate of return:

B.interest rate that makes the net present value of the investment equal to zero.

IRR is the rate at which Pv of inflows = Pv of outflows.