Question Details

CHAPTER 24 PLANNING FOR CAPITAL INVESTMENTS MULTIPLE CHOICE QUESTION PART 6


	86.	In evaluating high-tech projects,
a.	only tangible benefits should be considered.
b.	only intangible benefits should be considered.
c.	both tangible and intangible benefits should be considered.
d.	neither tangible nor intangible benefits should be considered.


	87.	Using a number of outcome estimates to get a sense of the variability among potential returns is
a.	financial analysis.
b.	post-audit analysis.
c.	sensitivity analysis.
d.	outcome analysis.

	88.	If a company's required rate of return is 9%, and in using the profitability index method, a project's index is greater than 1, this indicates that the project's rate of return is
a.	equal to 9%.
b.	greater than 9%.
c.	less than 9%.
d.	unacceptable for investment purposes.


	89.	The profitability index is computed by dividing the
a.	total cash flows by the initial investment.
b.	present value of cash flows by the initial investment.
c.	initial investment by the total cash flows.
d.	initial investment by the present value of cash flows.


	90.	The capital budgeting method that takes into account both the size of the original investment and the discounted cash flows is the
a.	cash payback method.
b.	internal rate of return method.
c.	net present value method.
d.	profitability index.


	91.	The profitability index
a.	does not take into account the discounted cash flows.
b.	is calculated by dividing total cash flows by the initial investment.
c.	allows comparison of the relative desirability of projects that require differing initial investments.
d.	will never be greater than 1.


	92.	The capital budgeting method that allows comparison of the relative desirability of projects that require differing initial investments is the
a.	cash payback method.
b.	internal rate of return method.
c.	net present value method.
d.	profitability index.


	93.	The following information is available for a potential investment for Panda Company:
Initial investment	$95,000
Net annual cash inflow	20,000
Net present value	36,224
Salvage value	10,000
Useful life	10 yrs.
The potential investment- profitability index is
a.	4.75.
b.	3.22.
MC. 93	(Cont.)
c.	2.62.
d.	1.38.


	94.	An approach that uses a number of outcome estimates to get a sense of the variability among potential returns is
a.	the discounted cash flow technique.
b.	the net present value method.
c.	risk analysis.
d.	sensitivity analysis.


	95.	If a project- profitability index is greater than 1, then the
a.	project should always be accepted.
b.	project- net present value is negative.
c.	project- internal rate of return is less than the discount rate.
d.	project should be accepted if funds are available.


	96.	If a project- profitability index is less than 1, then
a.	its net present value is zero.
b.	its net present value is positive.
c.	it should be rejected.
d.	its internal rate of return is greater than the discount rate.


	97.	If a project- profitability index is equal to 1, then
a.	its net present value is zero.
b.	its net present value is positive.
c.	it should be rejected.
d.	its internal rate of return is greater than the discount rate.


	98.	A project with an initial investment of $70,000 and a profitability index of 1.239 also has an internal rate of return of 12%. The present value of net cash flows is
a.	$78,400.
b.	$86,730.
c.	$56,497.
d.	$70,000.


 
	99.	A project with a profitability index of 1.156 also has net cash flows with a present value of $69,360. The project- internal rate of return was 10%. The initial investment was
a.	$66,000.
b.	$80,180.
c.	$60,000.
d.	$62,424.


100.	Selma Inc. is comparing several alternative capital budgeting projects as shown below:
			Projects	
			A			B			C	
Initial investment	$80,000	$120,000	$160,000
Present value of net cash flows	90,000	110,000	200,000

Using the profitability index, the projects rank as
a.	A, C, B.
b.	A, B, C.
c.	C, A, B.
d.	C, B, A.


	101.	Selma Inc. is comparing several alternative capital budgeting projects as shown below:
			Projects	
			A			B			C	
Initial investment	$80,000	$120,000	$160,000
Present value of net cash flows	90,000	110,000	200,000

Using the profitability index, how many of the projects are acceptable?
a.	3
b.	2
c.	1
d.	0

	102.	If a project has a negative net present value, its profitability index will be
a.	one.
b.	greater than one.
c.	less than one.
d.	undeterminable.










	103.	If a project has a positive net present value, its profitability index will be
a.	one.
b.	greater than one.
c.	less than one.
d.	undeterminable.


	
104.	If a project has a zero net present value, its profitability index will be
a.	one.
b.	greater than one.
c.	less than one.
d.	undeterminable.


105.	If a project has a profitability index of 1.20, then the project- internal rate of return is
a.	equal to the discount rate.
b.	less than the discount rate.
c.	greater than the discount rate.
d.	equal to 20%.