Chapter 12

Question 1

Typical capital budgeting decisions managers face

Answer 1

Cosr reduction decisions and expansion decisions

Question 2

Screening Decisions

Answer 2

A budgeting decision that asks if the project meets or exceeds a hurdle rate

Question 3

Preference decisions

Answer 3

A budgeting decision for those projects that meet or exceed a hurdle rate, which one is the best?

Question 4

Payback period

Answer 4

Number of years needed to recover the investment

Question 5

Payback period formula

Answer 5

Investment/net cash flows

Question 6

Accounting rate of return

Answer 6

Uses accrual accounting for NOI

Question 7

Accounting rate of return formula

Answer 7

Annual accrual net operating income/investment

Question 8

Net present value

Answer 8

Accept project if npv>=0

Question 9

Npv formula

Answer 9

Pv cash inflows-pv cash outflows

Question 10

Internal rate of return

Answer 10

Discount rate that results in a npv of 0

Question 11

IRR formula

Answer 11

Investment/net cash flows

Question 12

Straight line depresciation

Answer 12

Cost-residual value/lifetime

Question 13

Techqiques that consider the time value of money

Answer 13

NPV and IRR

Question 14

Techniques that dont consider time value of money

Answer 14

Payback period and ARR

Question 15

Accept project if

Answer 15

Npv is positive or zero

Question 16

Profitablility index

Answer 16

Npv/investment

Question 17

Computes unique rate of return

Answer 17

IRR