Saudi Electronic University

HCM 213

Chapter 7

1)The component(s) of a capital investment decision are:

1. 1. 1. Determining if the investment is worth while
      2. Costs of investing
      3. Determining how to finance the investment
      4. Both a & c
   2. Capital appreciation is:
      1. The portion of the profits the company keeps
      2. When an investment is worth more when it is sold than when it was purchased
      3. An increase in liabilities
      4. None of the above
   3. The strength(s) of the NPV analysis are:
      1. Answers in dollars, not years
      2. Accounts for all cash flows in the project
      3. Discounts at the cost of capital
      4. All of the above
   4. The three methods of evaluating large-dollar multiyear investment decisions from Chapter 7 are:
      1. Payback, net present value and internal rate of reduction
      2. Payoff, net present value and internal rate of return
      3. Payback, net present value and internal rate of return
      4. Payback, net present variables and internal return rate

1. 5. If the IRR is equal to the required rate of return the project should be:
      1. Accepted
      2. Rejected
      3. Handled indifferently
      4. Reinvented

1. 6. Straight-line depreciation is a method that depreciates an asset a(n)                                           amount each                                                                       until it reaches its salvage value.
      1. Varied, quarter
      2. Equal, day
      3. Varied, year
      4. Equal, year
   7. Sunk costs are:
      1. Recoverable
      2. Not recoverable
      3. Indicators of future gains
      4. Management’s poor decisions
   8. Spreadsheets are ideal for which method?
      1. NPV
      2. Payback
      3. IRR
      4. None of the above
   9. The payback method measures how long it will take to recover                            investment.
      1. Total
      2. Past
      3. Initial
      4. Non-financial

1. 10. The exact cost of capital is                                               to determine.
       1. Difficult
       2. Easy
       3. Impossible
       4. Time consuming

True or False

1. A capital investment is expected to achieve long-term benefits for the organization that generally fall into three categories: financial benefits, nonfinancial returns and the ability to attract more funds in the future. True or False?

2. Dividends are payments to creditors. True or False?

3. The payback method is in years, not dollars. True or False?

4. The payback method does account for the time value of money. True or False?

5. IRR analysis assumes reinvestment of proceeds at the internal rate of return. True or False?

6. NPV is calculated using ten steps. True or False?

7. Goodwill is tangible assets that will be affected by an entities future earnings. True or False?

8. Salvage value is the amount of cash to be received when an asset is sold, usually at the end of its useful life. True or False?

9. Discounted cash flows are adjusted to account for the cost of capital. True or False?

10. If the IRR is less than the required return rate, the project should be accepted. True or False?