A number of terms and concepts from this chapter and a list of descriptions, definitions, and explanations appear below. For each term listed below (1-9), choose at least one corresponding item (a-k). Note that a single term may have more than one description and a single description may be used more than once or not at all.
(a) | Discounted cash flow method of capital budgeting. |
(b) | Estimate of the average annual return on investment that a project will generate. |
(c) | Capital budgeting method that identifies the discount rate that generates a zero net present value. |
(d) | Decision that requires managers to evaluate potential capital investments to determine whether they meet a minimum criterion. |
(e) | Only capital budgeting method based on net income instead of cash flow. |
(f) | Ratio of the present value of future cash flows to the initial investment. |
(g) | Value that a cash flow that happens today will be worth at some point in the future. |
(h) | Concept recognizing that cash received today is more valuable than cash received in the future. |
(i) | Decision that requires a manager to choose from a set of alternatives. |
(j) | How long it will take for a particular capital investment to pay for itself. |
(k) | Capital budgeting technique that compares the present value of the future cash flows for a project to its original investment. |
1.Time Value of Money 2.Profitability Index 3.Payback Period 4.Net Present Value Method 5.Future Value 6.Preference Decision 7.Internal Rate of Return Method 8.Screening Decision 9.Accounting Rate of Return
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M11-1 (Static) Matching Key Terms and Concepts to Definitions [LO 11-1, 11-2, 11-3, 11-4, 11-5, 11-6]
Chapel > TelUIUBY is the process of evaluating which investments should be made by the company in the future. 2. In a La proposed project is compared to a preset standard of acceptance, usually a minimum desired rate of return called the In a only the best project is selected from competing courses of action. A stream of 3. The value today of a future cash flow is called the equal cash flows is called a(n) 4. The _approach to...
For a typical capital investment project, the bulk of the investment-related cash outflow occurs: During the initiation stage of the project During the operation stage of the project Either during the initiation stage or the operation stage During neither the initiation stage nor the operation stage Evenly during all three stages: initiation, operation, and final disposal The time value of money is explicitly considered in which of the following capital budgeting methods? Payback method Net present value (NPV) method Operating...
M11-7 Calculating Net Present Value, Predicting Internal Rate of Return [LO 11-3, 11-4] Vaughn Company has the following information about a potential capital investment: $ 520,000 83,000 Initial investment Annual cash inflow Expected life Cost of capital 10 years 9% 1. Calculate the net present value of this project. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round the final answer to nearest...
Mastery Problem: Net Present Value and Internal Rate of Return Part One Companies use capital investment analysis to evaluate long-term investments. Capital investment evaluation methods that use present values are (1) Net present value method (NPV) and (2) Internal rate of return (IRR) method. Methods That Use Present Values Of the two capital investment evaluation methods, a defining characteristic NPV and IRR is that they consider the time value of money. This means that money tomorrow is worth less than money today....
JS-1: How long is the payback period? a) 5.13 b) 6 c) 5.33 d) 5 JS-2: How much is the present value of future cash flow between year 1 and year 8? a) 83698 b) 71381 c) 72890 d) 72985 JS-3: How much is the net present value calculated as the present value of all future cash flows deducted by the initial investment? a) -72985 b) 72985 c) -27014 d) 27014 JS-4: How much is the Internal Rate of Return...
Attempts: 21 Keep the Highest: 2 / 3 1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Celestial Crane Cosmetics is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $400,000. The project is expected to generate the following net cash flows: Year Cash...
1. If a manager were concerned with the time value of money, from which two capital budgeting methods should the manager choose? Multiple Choice IRR or Payback. BET or IRR. BET or Payback. NPV or ARR. NPV or Payback. 2. Restating future cash flows in terms of present values and then determing the payback period using these present values is known as: Multiple Choice Break-even time (BET) Internal rate of return method. Accounting rate of return method. Net present value...
With the improvement in the technology and understanding of discounting techniques, both the net present value (NPV) technique and internal rate of return (IRR) technique used in capital budgeting analyses have become more popular because these techniques provide decisions that help the firm to a. minimize its overall payback period b.maximize its value c. maximize the initial capital investment d. minimize the number of multiple IRRs computed for every project e.maximize it required rate of return QUESTION 10 Which of...
Select the correct term for each of the following descriptions Hint: These are not necessarily complete definitions, but there is only one possible description for each term Descriptions Terms This value is calculated by summing a project's expected annual cash inflows until their cumulative value equals the project's initial cost. Capital budgeting This analysis involves a comparison of the expected and actual results for a given capital project and the development of an explanation for any disparity between them. Independent...
If a company must choose between two mutually exclusive investment projects, the best general method to employ for decision-making purposes is: Cash-flow bailout Cash-flow break-even Net Present value (NPV) Discounted payback Accounting (book) rate of return, based on average investment over the life of each project The profitability index (PI) is calculated as: Net present value (NPV) divided by average investment New present value (NPV) divided by initial investment Average investment divided by net present value (NPV) Initial investment divided...