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Homework answers / question archive / 1)Select one advantage of IRR as a capital budget method

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


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

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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