# Capital budgeting Practice True False Exam Questions

Net Present Value Practice True false questions

1. The three common discounted cash flow methods are net present value, internal rate of return, and payback.

2. The net present value (NPV) method calculates the return on investment from a project by discounting all expected future cash inflows and outflows back to the present point in time using the average cost of capital.

3. The internal rate of return is a method of calculating the expected gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time.

4. A capital budgeting project is accepted if the required rate of return equals or exceeds the internal rate of return.

5. The net present value method can be used in situations where the required rate of return varies over the life of the project.

6. The net present value method accurately assumes that project cash flows can only be reinvested at the discount rate used.

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#### Solution Preview

1. The three common discounted cash flow methods are net present value, internal rate of return, and payback.

Answer: FALSE

Explanation: The two common discounted cash flow methods are net present value and internal rate of return. The traditional payback method is not a discounted cash flow method.

2. The net present value (NPV) method calculates the return on investment from a project by discounting all expected future cash inflows and outflows back ...

#### Solution Summary

This solution provides answers to problems regarding net present value.