GB519: Measurement and Decision Making unit 4 quiz

IRR, because all reinvestment of funds occurs at the rate of the cost of capital and because it takes into consideration the relative size of the initial investment.
NPV, because it takes into consideration the relative size of the initial investment.
IRR, because all reinvestment of funds occurs at the discount rate that will make the NPV of the project equal to zero.
NPV, because all reinvestment of funds occurs at the discount rate that will make the NPV of the project equal to zero.

A basic objective underlying capital budgeting is to select assets that will earn a satisfactory return.
Capital budgeting is the process of planning asset investments.
Capital budgeting is based on precise estimates of future events.
Capital budgeting involves estimating the revenues and costs of each proposed project, evaluating their merits, and choosing those worthy of investment.
Capital budgeting uses after-tax cash flows in the analysis of proposed investments.

Modified internal rate of return (MIRR).
Payback.
Net present value (NPV).
Present value index (PI).
Internal rate of return method (IRR).

That generates cash flows for the longer period of time.
Whose net after-tax cash flows equal the initial investment outlay.
That has the greater accounting rate of return (ARR).
Whose cash flows vary the least.
That has the greater profitability index (PI).

Break-even point for the project.
Internal rate of return on the proposed investment.
Accounting (book) rate of return on the investment.
Capital asset pricing model.
Profitability index (PI) for the investment.

It is easy to calculate and comprehend.
It focuses primarily on liquidity, rather than profitability of an investment project.
It can be considered a rough measure of risk.
It considers returns over the entire life of the project.
It requires estimates of after-tax cash inflows and after-tax cash outflows.

$40,000 for wages and a net cash inflow of $60,000 for depreciation expenses.
$40,000 for wages and a net cash inflow of $40,000 for depreciation expenses.
$60,000 for wages and a net cash inflow of $60,000 for depreciation expenses.
$60,000 for wages and a net cash inflow of $40,000 for depreciation expenses.
$40,000 for wages and a net cash inflow of $100,000 for depreciation expenses.

Failure to consider all relevant costs.
Failure to properly identify sunk costs as irrelevant.
Failure to consider opportunity cost.
Failure to adjust for the time value of money.

Internal rate of return (IRR) of the project.
Modified internal rate of return (MIRR) on the project.
Book (accounting) rate of return for the project.
Net present value (NPV) of the project.
Modified internal rate of return (MIRR) of the project.

Opportunity cost from lost sales.
Value of full employment.
Time value of money.
Need for good management.
Value of capacity resource management.

Variable manufacturing cost of the component.
Fixed manufacturing cost of the component.
Total manufacturing cost of the component.
Cost of the production given up in order to manufacture the component.
Net benefit foregone from the best alternative use of the capacity required.

Value chain analysis.
Production constraints.
Sales mix costing.
Revenue forecasting.
Joint manufacturing costs.

4 years.
5 years.
6 years.
10 years.
15 years.

Weighted-average cost of capital (WACC).
Modified internal rate of return (MIRR).
Book (accounting) rate of return.
Internal rate of return (IRR).
Accounting rate of return (ARR), after tax.

Profitability index.
Payback period.
Book (accounting) rate of return.
Internal rate of return.
Adjusted payback period.

A long-term planning horizon is assumed.
Benefits of potential investment projects are conceptually expressed in terms of accounting income (or reduction in costs).
Project acceptance decisions are based on models that explicitly incorporate the time value of money.
Need to incorporate income-tax effects in the analysis, for both revenues (gains) as well as expenses (losses).
Discounted cash flow (DCF) decision models are used by a majority of large organizations.

Expansion option.
Exercise option.
Abandonment option.
Investment-timing option (e.g., delay)

Activity-based costing.
Cost-volume profit analysis.
Outsourcing activities.
Relevant cost-based pricing.

Cash flows only.
Timing of the cash flows only.
Cash flows and the timing of the cash flows.
Accounting-based measures of revenues and expenses.
Nonfinancial performance indicators.

Are frequent.
Are infrequent.
Commonly represent a large part of a firm's overall business.
Can never be profitable to a firm.

A pessimistic estimate in a typical scenario analysis.
An optimistic estimate in a typical scenario analysis.
The amount of after-tax cash flow needed to generate a return equal to a project's IRR.
The cash flow needed to generate an IRR of zero.
An estimate that can be arrived at using Goal Seek in Excel.

Payback period.
Discounted cash flow (DCF) methods.
Book (i.e., accounting) rate of return method.
Discounted payback period.
Cash-flow proxy method.