Question : Multiple Choice Questions 1.All of the following capital investment decisions except: A. acquiring : 1257011

Multiple Choice Questions 

1.All of the following are capital investment decisions except:   

A. acquiring $100,000 of common stock.

 

B. buying a $5,000,000 manufacturing plant.

 

C. purchasing equipment for $80,000.

 

D. paying $600,000 to renovate a restaurant.

 

 

2.Which of the following is not a factor in explaining why the present value of a future dollar is less than one dollar?   

A. Inflation

 

B. Interest

 

C. Risk of failure to receive expected cash inflows

 

D. Historic cost

 

 

3.Which statement characterizes the time value of money concept?   

A. The future value of a present dollar is greater than one dollar.

 

B. The present value of a future dollar is greater than one dollar.

 

C. The timing of cash flows is not relevant to decision making.

 

D. None of these answers is correct.

 

 

4.Evergreen Company has two investment opportunities. Both investments cost $5,000 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below:  Select the correct statement.   

A. Evergreen should choose Investment I because of the time value of money.

 

B. Evergreen should choose Investment II because it generates more immediate cash inflows.

 

C. Evergreen should be indifferent between the two investments because they provide the same total cash inflows.

 

D. Time value of money techniques are not useful for comparing these investments.

 

 

5.Which of the following statements describes the cost of capital?   

A. The internal rate of return on investments

 

B. The maximum acceptable rate of return on investments

 

C. The return that a company must pay its investors and creditors

 

D. The interest rate the bank charges its best customers

 

 

6.The cost of capital is called all of the following except:   

A. cutoff rate.

 

B. discount rate.

 

C. hurdle rate.

 

D. All of these are terms for the cost of capital.

 

 

7.For a capital investment project to be acceptable, it must generate a rate of return:   

A. less than the hurdle rate.

 

B. equal to or greater than the cost of capital.

 

C. equal to the conversion rate.

 

D. none of these answers is correct.

 

 

8.What amount of cash must be invested today in order to have $60,000 at the end of one year assuming the rate of return is 9%? (Do not round your PV factors.)   

A. $45,454.56

 

B. $54,000.00

 

C. $55,045.88

 

D. $54,600.00

 

 

9.What amount of cash would result at the end of one year, if $15,000 is invested today and the rate of return is 8%? (Do not round your PV factors.)   

A. $16,200

 

B. $13,889

 

C. $15,000

 

D. $1,200

 

 

10.Ashley projects that she can get $100,000 cash per year for 5 years on a real estate investment project. If Ashley wants to earn a rate of return of 12%, what is the maximum that she should pay for the investment? (rounded to the nearest dollar)   

A. $56,743

 

B. $446,429

 

C. $360,478

 

D. $560,000

 

 

 

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