12 Jun MULTIPLE CHOICE QUESTIONS
Multiple Choice Questions
The difference between an investment’s market value and its cost is the:
A. net present value.
b. internal rate of return.
c. payback period.
d. profitability index.
e. discounted payback period.
SECTION: 9.1
TOPIC: NET PRESENT VALUE
TYPE: DEFINITIONS
The process of valuing an investment by determining the present value of its future cash flows is called:
a. the constant dividend growth model.
B. discounted cash flow valuation.
c. average accounting valuation.
d. the expected earnings model.
e. the Capital Asset Pricing Model.
SECTION: 9.1
TOPIC: DISCOUNTED CASH FLOW VALUATION
TYPE: DEFINITIONS
The length of time required for an investment to generate cash flows sufficient to recover the initial cost of the investment is called the:
a. internal rate of return.
B. payback period.
c. profitability index.
d. discounted cash period.
e. net present value.
SECTION: 9.2
TOPIC: PAYBACK PERIOD
TYPE: DEFINITIONS
The length of time required for a project’s discounted cash flows to equal the initial cost of the project is called the:
a. net present value.
b. internal rate of return.
c. payback period.
d. discounted profitability index.
E. discounted payback period.
SECTION: 9.3
TOPIC: DISCOUNTED PAYBACK PERIOD
TYPE: DEFINITIONS
An investment’s average net income divided by its average book value defines the average:
a. net present value.
b. internal rate of return.
C. accounting return.
d. profitability index.
e. payback period.
SECTION: 9.4
TOPIC: AVERAGE ACCOUNTING RETURN
TYPE: DEFINITIONS
The discount rate that makes the net present value of an investment exactly equal to zero is called the:
a. external rate of return.
B. internal rate of return.
c. average accounting return.
d. profitability index.
e. equalizer.
SECTION: 9.5
TOPIC: INTERNAL RATE OF RETURN
TYPE: DEFINITIONS
The possibility that more than one discount rate will make the NPV of an investment equal to zero is called the _____ problem.
a. net present value profiling
b. operational ambiguity
c. mutually exclusive investment decision
d. economies of scale
E. multiple rates of return
SECTION: 9.5
TOPIC: MULTIPLE RATES OF RETURN
TYPE: DEFINITIONS
A situation in which accepting one investment prevents the acceptance of another investment is called the:
a. net present value profile.
b. operational ambiguity decision.
C. mutually exclusive investment decision.
d. economies of scale decision.
e. multiple choices of operations decision.
SECTION: 9.5
TOPIC: MUTUALLY EXCLUSIVE INVESTMENT DECISION
TYPE: DEFINITIONS
The present value of an investment’s future cash flows divided by the initial cost of the investment is called the:
a. net present value.
b. internal rate of return.
c. average accounting return.
D. profitability index.
e. profile period.
SECTION: 9.6
TOPIC: PROFITABILITY INDEX
TYPE: DEFINITIONS
Capital budgeting decisions generally:
A. have long-term effects on a firm.
b. are of short-duration.
c. revolve around the decision to use either debt or equity securities to finance a project.
d. focus solely on whether or not a particular asset should be purchased.
e. have minimal effects on a firm’s operations.
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