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Multiple Choice
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1

______________ focuses on long-term decision-making regarding the acquisition of projects.
A)Working Capital Management
B)Capital Budgeting
C)Cash Budgeting
D)none of the above
2

Since capital budgeting uses cash flows instead of accounting flows, the financial manager must add back _____________ to the analysis.
A)the cost of fixed assets
B)the cost of accounts payable
C)investments
D)depreciation
3

Which of the following capital budgeting methods focuses on firm liquidity?
A)payback method
B)net present value
C)internal rate of return
D)none of the above
4

Which of the following capital budgeting methods states the return of a project as a percentage?
A)payback period
B)net present value
C)internal rate of return
D)none of the above
5

Which of the following capital budgeting methods is the least theoretically correct?
A)payback method
B)net present value
C)internal rate of return
D)none of the above
6

Which of the following capital budgeting methods measures how long it takes to recover the initial investment in a project?
A)payback method
B)net present value
C)internal rate of return
D)none of the above
7

If two projects are independent, that means that ___________________.
A)Selection of one precludes selection of the other.
B)You should analyze the projects independently.
C)Both a and b
D)none of the above
8

According to the reinvestment rate assumption, which method of capital budgeting assumes cash flows are reinvested at the project's rate of return?
A)payback period
B)net present value
C)internal rate of return
D)none of the above
9

When a firm places a budgetary constraint on the projects it invests in, this is called:
A)capital rationing
B)working capital management
C)cash budgeting
D)none of the above
10

The benefits attributed to an investment project are:
A)tax shield benefits of depreciation
B)after-tax operating benefits
C)rate of return less than the cost of capital
D)both a and b are correct





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