Capital Budgeting(Quick Test #1)

1. Recognizing that a dollar in the future is worth less than a dollar today is the essence of the __________ value of money.

2. A series of equal amounts occurring at equal time intervals describes an __________.

3. Methods that compute the present value of future cash flows are referred to as __________ cash flow techniques.

4. Part of the difference between a company’s net income during a specific year and its net cash flow during the same year is usually attributable to __________ expense.

5. The conventional payback period is calculated by using the __________.

6. Which rate used for discounting will result in the largest present value?

7. Which of the following techniques does not indicate the profitability of a potential investment project?

8. A project’s discounted cash flows result in a negative present value. This indicates that the project will have a negative accounting net income.

9. The __________ rate of return does not consider the time value of money.

10. The cash savings from depreciation is the income tax deduction for depreciation multiplied by the income tax rate.

11. The factors taken from a present value of 1 table assume the amounts occur __________ the period.

12. Which of the following rates is not appropriate for discounting an investment’s future cash flows?

13. If a project is considered to be risky, the rate used to discount its cash flows should be __________ the rate used to discount the cash flows of a project considered to be more safe.

14. Using an accelerated depreciation method on a company’s income tax return instead of the straight-line method will __________the net present value and internal rate of return.

15. The internal rate of return calculation uses cash flow amounts, while the accounting rate of return calculation uses accrual accounting net income amounts?

16. A series of equal amounts occurring at the end of equal periods of time describes an __________.

17. An annuity in arrears is also known as an __________.

18. The __________ rate of return is the rate that discounts the future cash flows to the exact amount of the investment.

19. A project’s accounting income divided by the investment or the average investment describes the __________.

20. A project under consideration indicates a net present value of $0 when its cash flows are discounted at 12%. This project’s internal rate of return is __________.

21. The payback period is __________ years.

22. Assuming a required rate of return of 12%, the present value of the cash receipts from this project is $__________.

23. If rate of return of 12% is required, the net present value of this project is $__________.

24. The internal rate of return on this investment is slightly __________than 12%.

25. A $70,000 investment on January 1, 2024 will result in a one-time receipt of $100,000 on December 31, 2026. Assuming a required rate of return of 12%, the net present value of the investment is $__________ (Use the present value factors shown in the introduction to Questions 21 – 24).