1.

In general terms, a sound capital investment will earn

a. back its original capital outlay.
b. a return greater than existing capital investments.
c. back its original capital outlay and provide a reasonable return on the original
investment.
d. back its original capital outlay by the midpoint of its useful life.
e. None of these.

9. Which of the following is true while making a capital investment decision?

a. A manager should assess the risk of the project.
b. A manager should ignore the timing of the cash flows.
c. A manager should compute the competitor's return on investment.
d. A manager should ensure that the project cost is equal to the cash flow from
investment.
e. All of these.
10. Which of the following is true of capital investment decision making?
a. It is used only for independent projects.
b. It is used only for mutually exclusive projects.
c. It requires that funding for a project must come from sources with the same
opportunity cost of funds.
d. It is used to determine whether or not a firm should accept a special order.
e. None of these.
11. Which of the following is used to calculate the payback period?
a. Original Investment / Annual Cash Flow
b. Net Profit × Annual Cash Flow
c. Original Investment + Annual Cash Flow
d. Net Profit − Annual Cash Flow
e. (Net Profit + Annual Cash Flow) / Annual Cash Flow
12. The payback period provides information to managers that can be used to help
a. control the risks associated with the uncertainty of future cash flows.
b. minimize the impact of an investment on a firm's liquidity problems.
c. control the risk of obsolescence.
d. control the effect of the investment on performance measures.
e. All of these.

13. Which of the following formulas is used to compute the accounting rate of return?
a. Average Income / Initial Investment
b. Initial Investment / Annual Cash Flow
c. Net Profit / Initial Cash Flow
d. Present Value of the Investment / Average Income
e. (Average Income + Initial Investment) / Initial Investment
14. Managers may use the accounting rate of return to evaluate potential investment projects because
a. debt contracts require that a firm maintain certain ratios that are affected by income
and long-term asset levels.
b. it serves as a screening measure to insure that new investments do not affect key
financial ratios.
c. bonuses to managers may be based on accounting income and/or return on assets.
d. it can be tied to the manager's personal income.
e. All of these.
15. Which of the following capital investment decision models is based on the time required for a
firm
to recover its original investment?
a. The average rate of return
b. The internal rate of return
c. The net present value
d. The accounting rate of return