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Multiple Choice Quiz
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1

An investment should be accepted if the net present value is positive.
A)True
B)False
2

For projects with conventional cash flows and for positive discount rates, the payback period will be shorter than the discounted payback period.
A)True
B)False
3

The only advantage of the average accounting return is that the information needed to compute it will usually be available.
A)True
B)False
4

An investment is acceptable if the IRR exceeds the required return.
A)True
B)False
5

If a project has conventional cash flows, it may also have more than one IRR.
A)True
B)False
6

Both the IRR and the profitability index decision rules may lead to incorrect decisions in comparisons of mutually exclusive investments.
A)True
B)False
7

Very few large U.S. firms use the payback rule when making capital budgeting decisions.
A)True
B)False
8

If investment funds are limited and the projects under consideration are independent from one another, the IRR should be used to rank projects to determine which ones should be accepted.
A)True
B)False
9

The essence of _________________ is determining whether a proposed investment or project will generate positive wealth for the owners of the firm once it is in place.
A)strategic asset allocation
B)capital structure analysis
C)cash flow analysis
D)payback analysis
E)working capital analysis
10

Which of the following is NOT correct?
A)NPV is one of the two or three most important concepts in finance
B)NPV is always just the difference between the market value of an asset or project and its cost
C)The financial manager acts in the shareholders' best interests by identifying and taking positive NPV projects
D)NPV's can normally be directly observed in the market
E)Investment criteria other than NPV provide additional information about whether or not a project truly has a positive NPV





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