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Accounting 4

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14. In order to calculate the net present value of a proposed investment, it is necessary to know:
a. the interest rate paid on funds borrowed to make the investment.
b. the cash dividends paid on the stock each year.
c. the cash flows expected from the investment.
d. the net income expected from the investment.

15. The accounting rate of return method for evaluating proposed investments:
a. is based on cash receipts and disbursements related to the investment.
b. uses accounting net income from the operating budget.
c. does not recognize the time value of money.
d. is easier to use than the net present value method.

16. In a capital budgeting decision, if a firm uses the net present value method and a 12% discount rate, what does a negative net present value indicate?
a. The proposal's rate of return exceeds 12%.
b. The proposal's rate of return is less than the minimum rate required.
c. The proposal earns a rate of return between 10% and 12%.
d. None of the above.

17. Relevant costs in decision-making:
a. are future costs that represent differences between decision alternatives.
b. result from past decisions.
c. should not influence the decision.
d. none of the above.

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Choose the correct answer:

14. In order to calculate the net present value of a proposed investment, it is necessary to know:
a. the interest rate paid on funds borrowed to make the investment.
b. the cash dividends paid on the stock each year.
c. the cash flows expected from the investment.
d. the net income expected from the investment.

NPV is a discounted cash flow computation. So you need a discount rate and the future cash flows from the investment. Pick C.

15. The ...

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