Do all companies use the same tools to assess investment decisions/proposals?

1 2

50%50%1. Yes

2. No

Do you think that XM Satellite Holdings, Inc. prepared a detailed investment proposal/analysis to determine if it should launch its first satellite?

1 2

50%50%1. Yes

2. No

Can some of the assumptions that are made related to an investment, such as a useful life,

have a significant impact on the investment decision?

1 2

50%50%1. Yes

2. No

Do you think that it is difficult for a company like XM Satellite Holdings, Inc. to prepare an

investment proposal/analysis?

1 2

50%50%1. Yes

2. No

Do all companies use investment analysis to make decisions related to investments?

1 2

50%50%1. Yes

2. No

Capital investment evaluation methods can be grouped by methods that do not use present

values and methods that do use present values.

1 2

50%50%1. True

2. False

The average rate of return method for investment valuation uses present values.

1 2

50%50%1. True

2. False

Investment valuation methods that ignore present values are often useful in evaluating capital

investment proposals that have relatively short useful lives.

1 2

50%50%1. True

2. False

The primary disadvantage of the internal rate of return method is that the present values of the net cash flows

over the entire useful life of the proposal are considered.

1 2

50%50%1. True

2. False

A short payback period is more desirable.

1 2

50%50%1. True

2. False

Qualitative considerations in investment analysis are most appropriate for non-

strategic investments.

1 2

50%50%1. True

2. False

The final steps in the capital rationing process are ranking the proposals according

to management’s criteria.

1 2

50%50%1. True

2. False

The process by which management plans, evaluates, and controls investments in fixed

assets is called

1 2 3 4

25% 25%25%25%1. sensitivity analysis

2. capital investment analysis

3. cost-benefit analysis

4. quantitative analysis

Which of the following investment evaluation methods uses present values?

1 2 3 4

25% 25%25%25%1. Internal rate of

return method

2. Cash payback method

3. Average rate of return method

4. Declining balance method

The investment evaluation method that divides the estimated annual average income by the average

investment is called the

1 2 3 4

25% 25%25%25%1. net present value

method

2. internal rate of return method

3. average rate of return method

4. cash payback method

The net present value method

1 2 3 4

25% 25%25%25%

1. is the present value of the investment’s cash inflows

2. adds the investment’s initial cash outflow to the present value of its cash inflows

3. compares an investment’s initial cash outflow with the current value of its cash inflows

4. compares an investment’s initial cash outflow with the present value of its cash inflows

Which of the following factors does not complicate capital investment analysis?

1 2 3 4

25% 25%25%25%1. Income taxes

2. Unequal proposal lives

3. Adequate financial information on the proposals

4. Leasing

The process by which management allocates funds among competing capital

investment proposals is called

1 2 3 4

25% 25%25%25%1. incremental

analysis

2. capital rationing

3. cost-benefit analysis

4. differential analysis

A project will have a present value index greater than one when the net present value is

1 2 3 4

25% 25%25%25%

1. positive

2. negative

3. equal to zero

4. equal to one

Which of the following is an advantage of using the net present value method?

1 2 3 4

25% 25%25%25%1. It is easy to calculate

2. It ignores the cash flows near the end of the investment’s useful life

3. It ignores the time value of money

4. It considers the time value of money

A series of equal net cash flows at fixed time intervals is called a(n)

1 2 3 4

25% 25%25%25%1. return on

investment

2. gross profit

3. annuity

4. internal rate of return

The internal rate of return for an investment is most easily calculated when

1 2 3 4

25% 25%25%25%1. annual cash flows are not equal

2. annual cash flows are equal

3. when income taxes are involved in the investment analysis

4. when the cash flows involve multiple inflows and outflows