Describe the capital budgeting

Reference no: EM1311131

Capital Budgeting

1. Some firms use the payback period as a decision criterion or as a supplement to sophisticated decision techniques because

a. it can be viewed as a measure of risk exposure

b. It explicitly considers the time value of money

c. the determination of payback is an objectively determined criteria

d. it can take the place of the net present value approach

2. When the net present value is negative, the internal rate of return is ______ the cost of capital

a. a greater than

b. greater or equal to

c. less than

d. equal to

3. The _____ is the discount rate that equates the present value of the cash inflows with the initial investment

a. a payback period

b. average rate of return

c. cost of capital

d. internal rate of return

4. The average of using simulation in the capital budgeting process is

a. ease of calculation

b. the availability of a continuum of risk-return trade-offs which may be used as the basis for decision making

c. dependability of predetermined probability distributions

d. that it generates a continuum of risk-return tradeoffs rather than a single point estimate

5. The _______ is the exact amount of time it takes the firm to recover its initial investment

a. a average rate of return

b. internal rate of return

c. net present value

d. payback period

Reference no: EM1311131

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