CH 8

Question 1

Whenever the internal rate of return on a project equals that
project’s required rate of return, the net present value equals
zero

Answer 1

True

Question 2

NPV is the most theoretically correct capital budgeting
decision tool examined in the text.

Answer 2

True

Question 3

The net present value of a project always increases as the
required rate of return is decreased.

Answer 3

False

Question 4

One drawback of the payback method is that some cash flows
may be ignored.

Answer 4

True

Question 5

The npv method

Answer 5

uses all of a projects cash flows, is consistent with the goal of shareholder wealth maximization, recognizes the time value of money

Question 6

The payback period is the period of time it takes an
investment to generate sufficient cash flows to

Answer 6

recover the investments initials cost

Question 7

The net present value profile is a graphical relationship
depicting how a change in the _____ affects the project’s NPV.

Answer 7

discount rate

Question 8

The present value of an investment’s cash inflows divided by
the investment’s initial cost is called the:

Answer 8

profitability index

Question 9

Which one of the following ignores the time value of
money?

Answer 9

payback