Question

Q1. Discounted cash flow methods rely heavily on the following assumption:

a.future cash flows are certain

b.the capital market is perfect

c.both a and b

Q2. The minimum acceptable rate of return should be based on:

a.the net present value of the investment

b.the risk involved in the investment

c.the future cash flows of the investment

Q3. This NPV approach only takes into account the incremental cash flows between two alternatives:

a.differential approach

b.incremental approach

c.total project approach

Q4. One limitation of the payback period model is that it only considers:

a.Time value of money

b.Interest

c.Initial capital outlay

Q5. The Net present value of Machine X less Machine Y is negative. This means that:

a.Machine X should be selected.

b.Machine Y should be selected.

c.Neither one should be selected, because both investments are unprofitable.

Q6. The following statement is not true of the post-audit process:

a.It should be conducted for every investment.

b.It can improve future decision making.

c.It can evaluate the effectiveness of cash flow predictions

Answer 1

1. a. future cash flow are certain, Discounted cash flow methods rely heavely on the assumptions that future cash flow are certain.

2. c, future cash flow of investment. The minimum acceptable rate of return should be based on the future cash flow of investment.

3. b. Incrimental approach. The NPV approach only takes into account the incrimental cash flow between two alternatives.

4. c. initial capital outlay. One limitation of the payback period model is that it can only consider the initial capital outlay.

5. The net present value of machine X is less and machine Y is negative , as this means that Neither one should be selected , because both the investment are not profitable.

6. It should be conducted for the every investment is not true about the post audit process.