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1)Select one advantage of IRR as a capital budget method

Finance

1)Select one advantage of IRR as a capital budget method.

  • a.)It is useful for comparing projects with different lifespans.
  • b.)It tells a company how long it will take to recover their investment.
  • c.)It generates more accurate cash flow estimates.
  • d.)It is relatively simple and easily comprehensible.

2)What is one disadvantage of NPV as a capital budget method?

  • a.)It can be inaccurate because a company cannot adjust the discount rate when calculating NPV.
  • b.)There is disagreement about whether a project with a negative NPV should be approved or not.
  • c.)It is not very good at accounting for opportunity cost.
  • d.)It can only be used to assess a single investment and is not a comparative tool
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3)Although __________ is recorded as an expense on the cash flow statement, it is not included as part of cash flow in the capital budgeting process.

  • a.)tax
  • b.)depreciation
  • c.)an equipment purchase
  • d.)a sunk cost

4)Which of the following is an example of an operational risk for a company that manufactures automobiles?

  • a.)An economic recession that causes people to stop buying new cars
  • b.)Consumers who purchase cars directly from the manufacturer missing loan payments
  • c.)Falling profit margins due to stiff competition among automobile manufacturers
  • d.)Disruption to the supply chain of material, due to domestic unrest in the source country

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Answer:

Q1. Choice (d) is correct.

Q2. Choice (c) is correct

Q3. Choice (d) is correct

Q4. Choice (d) is correct

Step-by-step explanation

Q1. Choice (d) is correct. (It is relatively simple and easily comprehensible.)

Q2. Choice (c) is correct. (It is not very good at accounting for opportunity cost.)

Q3. Choice (d) is correct. (a sunk cost)

Q4. Choice (d) is correct. (Disruption to the supply chain of material, due to domestic unrest in the source country)

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