MAS-CAPITAL BUDGETING PROF. EG LINDOREVIEWERS(THEORY)==================================================================================Page | 2
5. Assume that a project consists of an initial cash outlay of $100,000 followed by equalannual cash inflows of $40,000 for 4 years. In the formula X = $100,000/$40,000, Xrepresents thea. payback period for the project.b. profitability index of the project.c. internal rate of return for the project.d.
project’s discount rate.
ANSWER: a EASY6. All other factors equal, a large number is preferred to a smaller number for all capitalproject evaluation measures
a. net present value.b. payback period.c. internal rate of return.d. profitability index.ANSWER: b EASY7. The payback method assumes that all cash inflows are reinvested to yield a return equaltoa. the discount rate.b. the hurdle rate.c. the internal rate of return.d. zero.ANSWER: d EASY8. The payback method measuresa. how quickly investment dollars may be recovered.b. the cash flow from an investment.c. the economic life of an investment.d. the profitability of an investment.ANSWER: a EASY