Question

1(a). (TRUE or FALSE?) Financial managers should not rely on the net present value method as a primary decision method.

1(b). (TRUE or FALSE?) If the value of one currency decreases relative to the value of another currency, the currency with the falling value is said to be strengthening.

1(c). (TRUE or FALSE?) Perpetuities contain an infinite number of annuity payments.

Answer 1

1(a)

From various measure of capital budgeting net present value is best measure of capital budgeting because of following reason.

1. net present value consider the reinvestment of cash flow at discount rate while other method IRR consider reinvestment at IRR rate

2. Net present value consider time value of money and consider whole period of cash flow which is not available with payback period and discounted payback period methods.

So,  Financial managers should always rely on the net present value method as a primary decision method.

Statement is false.

1(b)

If the value of one currency decreases relative to the value of another currency, the currency with the falling value is said to be weaknening.

Statement is false.

1(c)

Perpetuities is defined as series of equal payment for infinite period of time.

Statement is true.