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Accounting 5

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18. Which of the following is a true statement regarding the net present value method in capital budgeting?
a. It calculates the present value of future cash flows.
b. It calculates the proposal's rate of return.
c. It provides the same basic information as the accounting rate of return.
d. It doesn't consider the time value of money.

19. If the net present value of a proposed investment is positive:
a. the investment not will be made.
b. the cost of capital is higher than the internal rate of return.
c. the cost of capital is positive.
d. the cost of capital is lower than the internal rate of return.

21. Capital budgeting differs from operational budgeting because:
a. operating expenses are not relevant.
b. capital budgets don't affect cash flow.
c. it considers the time value of money.
d. depreciation calculations are required.

22. Product Z sells for $18 per unit as is but if it is enhanced it can be sold for $24 per unit. The enhancement process will cost $50,000 for 10,000 units. If the 10,000 units of Product Z are sold as is without further processing, the company:
a. will incur an incremental loss of $6 per unit.
b. will incur an incremental profit of $1 per unit.
c. will incur an opportunity cost of $10,000.
d. will incur an incremental profit of $10,000.

Solution Preview

18. Which of the following is a true statement regarding the net present value method in capital budgeting?
a. It calculates the present value of future cash flows.
b. It calculates the proposal's rate of return.
c. It provides the same basic information as the accounting rate of return.
d. It doesn't consider the time value of money.

NPV is the present value of future cash flows using the discount rate(hurdle rate) (time value of money). Pick A. Rate of return is the annualized return with no "hurdle rate" involved. Accounting rate of return is ...

Solution Summary

A sentence explains each choice.

$2.19