The document provides a list of 30 multiple choice questions related to capital budgeting techniques including net present value, internal rate of return, payback period, accounting rate of return, and profitability index. The questions assess understanding of concepts such as discount rates, cash flows, time value of money, and advantages and disadvantages of different investment decision models.

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• Question 1 Which of the following statements about
investment decision models is true?
• Question 2 Which of the following events would decrease the
internal rate of return of a proposed asset purchase?
• Question 3 Which of the following is a disadvantage of the
internal rate of return as a method of evaluating investments?
• Question 4 Net present value (NPV) and internal rate of
return (IRR) differ in that
• Question 5 Which of the following characteristics represent
an advantage of the internal rate of return technique over the
accounting rate of return technique in evaluating a project?
• Question 6 It is assumed that cash flows are reinvested at
the rate earned by the investment in which of the following
capital budgeting techniques?
• Question 7 Which of the following changes would result in
the highest present value?
• Question 8 Which of the following is an advantage of net
present value modeling?
• Question 9 The Bread Company is planning to purchase a
new machine which it will depreciate on a straight-line basis

2. over a 10-year period. A full year’s depreciation will be taken in
the year of acquisition. The machine is expected to produce
cash flow from operations, net of income taxes, of $3,000 in
each of the 10 years.; The accounting (book value) rate of
return is expected to be 10% on the initial increase in required
investment. The cost of the new machine will be
• Question 10 Net present value as used in investment
decision-making is stated in terms of which of the following
options?
• Question 11 On January 1, 2012, Colt Company issued 10-year
bonds with a face amount of $1,000,000 and a stated interest
rate of 8% payable annually on January 1. The bonds were
priced to yield 10%. Present value factors are as follows:
• Question 12 Assume that management of Trayco has
generated the following data about an investment project that
has a five-year life:
• Question 13 Assume that management of Trayco has
generated the following data about an investment project that
has a five-year life:
• Question 14 Which of the following statements is correct
regarding payback method as a capital budgeting technique?
• Question 15 A client wants to know how many years it will
take before the accumulated cash flows from an investment
exceed the initial investment, without taking the time value of
money into account. Which of the following financial models
should be used?
• Question 16 Which of the following limitations is common to
the calculations of payback period, discounted cash flow,
internal rate of return, and net present value?
• Question 17 A project has an initial outlay of $1,000. The
projected cash inflows are
• Question 18 Harvey Co. is evaluating a capital investment
proposal for a new machine. The investment proposal shows
the following information:

3. • Question 19 How are the following used in the calculation of
the net present value of a proposed project? Ignore income tax
considerations.
• Question 20 In considering the payback period for three
projects, Fly Corp. gathered the following data about cash flows:
• Question 21 The discount rate (hurdle rate of return) must be
determined in advance for the
• Question 22 Which of the following statements is correct
regarding financial decision making?
• Question 23 Which of the following is necessary in order to
calculate the payback period for a project?
• Question 24 An efficient portfolio is one that
• Question 25 Which of the following scenarios would
encourage a company to use short-term loans to retire its ten-
year bonds that have five years until maturity?
• Question 26 What is the formula for calculating the
profitability index of a project?
• Question 27 The profitability index is a variation on which of
the following capital budgeting models?
• Question 28 Assume that management of Trayco has
generated the following data about an investment project that
has a five-year life:
• Question 29 A company purchases an item for $43,000. The
salvage value of the item is $3,000. The cost of capital is 8%.
Pertinent information related to this purchase is as follows:
• Question 30 A project has a present value of future net cash
inflows of $120,000 and an initial investment of $110,000.
Calculate the excess present value index for the project.