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Chapter 12 - The Capital Budgeting Decision
69. Assuming that a firm has no capital rationing constraint and that a firm's investment
alternatives are not mutually exclusive, the firm should accept all investment proposals
70. If projects are mutually exclusive
71. The internal rate of return and net present value methods:
Chapter 12 - The Capital Budgeting Decision
72. A characteristic of capital budgeting is
73. A project requires an investment of $2,500 and has a net present value of $430. If the IRR
is 10%, what is the profitability index for the project?
74. With non-mutually exclusive projects.
Chapter 12 - The Capital Budgeting Decision
75. The Net Present Value Method is a more conservative technique for selecting investment
projects than the Internal Rate of Return method because the NPV method
76. The _________ assumes returns are reinvested at the cost of capital.
77. In using the internal rate of return method, it is assumed that cash flows can be reinvested
at
Chapter 12 - The Capital Budgeting Decision
78. For acceptable investments, the reinvestment assumption under the internal rate of return
is generally
79. The internal rate of return assumes that funds are reinvested at the:
80. If an investment project has a positive net present value, then the internal rate of return is
Chapter 12 - The Capital Budgeting Decision
81. As the cost of capital increases
82. The net present value method is a better method of evaluation than the internal rate of
return method because the NPV method
83. The modified internal rate of return assumes:
Chapter 12 - The Capital Budgeting Decision
84. Capital rationing
85. If a firm is experiencing no capital rationing, it should accept all investment proposals
86. A firm may adopt capital rationing because
Chapter 12 - The Capital Budgeting Decision
87. Capital rationing assumes:
88. The net present value profile
89. Which of the following is not a step in creating the net present value profile?
Chapter 12 - The Capital Budgeting Decision
90. Using higher discount rates,
91. Which statement, or statements, are true about depreciation?
Chapter 12 - The Capital Budgeting Decision
92. The Wet Corp. has an investment project that will reduce expenses by $25,000 per year
for 3 years. The project's cost is $55,000. If the asset is part of the 3-year MACRS category
(33% first year depreciation) and the company's tax rate is 34%, what is the cash flow from
the project in year 1?
93. An asset fitting into the 7-year MACRS category was purchased 2 years ago for $72,000.
The book value of this asset is now
Chapter 12 - The Capital Budgeting Decision
94. For MACRS depreciation, automobiles and light trucks fit into the
95. With the exception of real estate investments, MACRS depreciation is beneficial to
corporations because it
96. A firm purchases an asset falling into the 3-year MACRS category for $48,000. The
second year's depreciation expense for this asset would be
Chapter 12 - The Capital Budgeting Decision
97. Which of the following does MACRS depreciation provide to corporations?
98. Elective expensing has the following characteristic:
99. At higher tax rates, depreciation is
Chapter 12 - The Capital Budgeting Decision
100. If the capital budgeting decision includes a replacement analysis, then
101. An equipment replacement decision, under incremental analysis, requires
102. In a replacement decision, if an old asset sells below book value, from a tax standpoint
Chapter 12 - The Capital Budgeting Decision
103. Firm X is considering the replacement of an old machine with one that has a purchase
price of $70,000. The current market value of the old machine is $18,000 but the book value
is $32,000. The firm's tax rate for ordinary income is 30%. What is the net cash outflow for
the new machine after considering the sale of the old machine?
104. A firm is selling an old asset below book value in a replacement decision. As the firm's
tax rate is raised, the net cash outflow (purchase price less proceeds from the sale of the old
asset) would:
Chapter 12 - The Capital Budgeting Decision
105. Project X has a cost of $100,000 and provides the following annual earnings: year 1
$35,000; year 2 $25,000; year 3 $175,000; and year 4 $10,000. Under the payback method, in
which year is the investment recouped?
106. All of the following is information required to create a net present value profile except:
