Ch. 12 MC and Short Answer Practice

Question 1

Which of the following is not an example of a cash outflow?
a) repairs and maintenance
b) initial investment
c) incremental operating costs
d) salvage value

Answer 1

d) salvage value

Question 2

If a company’s required rate of return is 10% and, in using the net present value method, a project’s net present value is zero, this indicates that the

a) Project’s rate of return exceeds 10%.
b) Project’s rate of return is less than the minimum rate required.
c) Project earns a rate of return of 10%.
d) Project earns a rate of return of 0%.

Answer 2

c) Project earns a rate of return of 10%.

Question 3

When a capital budgeting project generates a positive net present value, this means that the project earns a return higher than the
a) Internal rate of return.
b) Annual rate of return.
c) Required rate of return.
d) Present value index

Answer 3

c) Required rate of return.

Question 4

An asset costs $210,000 with a $30,000 salvage value at the end of its ten-year life. If annual cash inflows are $30,000, the cash payback period is
a) 8 years.
b) 7 years.
c) 6 years.
d) 5 years

Answer 4

b) 7 years.