Question

should be indifferent between the projects. K. Capital budgeting is primarily the procest of planning for the issuance of capital stoek. L. Relevant information cencerning longterm investment opportunities consists of information about the initial investment and the incremental future cash fows. Past data are useful only in assisting with the estimation of future ameunts. L. Relevant information cencerning longterm investment opportunities consists of information about the initial investment and the incremental future cash fows. Past data are useful only in assisting with the estimation of future ameunts. The m. The term "discounted cash nows," as used in capital budgeting, refers to taking all the discounts avaliable If payment of merchandise is made carty-within the discount period. m. The term "discounted cash nows," as used in capital budgeting, refers to taking all the discounts avaliable If payment of merchandise is made carty-within the discount period. False n. To find the net present value, you would determine the total present value of the future cash fows and subtract the initial investment. n. To find the net present value, you would determine the total present value of the future cash fows and subtract the initial investment. Tno a. If the net present value is positive, at least the minimum desired rate of return will be carned, and the project is acceptable. a. If the net present value is positive, at least the minimum desired rate of return will be carned, and the project is acceptable. True p. If the internal rate of return is greater than the cost of capital, the project is too expensive and should be rejected. p. If the internal rate of return is greater than the cost of capital, the project is too expensive and should be rejected. False 9. The payback period represents the time required to recover the initial investment. True 5. Payback is used by some firms because it is simple, it can be used in conjunction with the discounted cash fow methods, and with risky projects, a company may be more interested in the payback period than in total profitability. 5. Payback is used by some firms because it is simple, it can be used in conjunction with the discounted cash fow methods, and with risky projects, a company may be more interested in the payback period than in total profitability. True The accounting rate of return methe grad "L. Relevant information cencerning longterm investment opportunities consists of information about the initial investment and the incremental future cash fows. Past data are useful only in assisting with the estimation of future ameunts." The "m. The term "discounted cash nows," as used in capital budgeting, refers to taking all the discounts avaliable If payment of merchandise is made carty-within the discount period." False "n. To find the net present value, you would determine the total present value of the future cash fows and subtract the initial investment." Tno "a. If the net present value is positive, at least the minimum desired rate of return will be carned, and the project is acceptable." True "p. If the internal rate of return is greater than the cost of capital, the project is too expensive and should be rejected." False 9. The payback period represents the time required to recover the initial investment. True "5. Payback is used by some firms because it is simple, it can be used in conjunction with the discounted cash fow methods, and with risky projects, a company may be more interested in the payback period than in total profitability." True The accounting rate of return methe grad project's time that it will take to recover the initial investment. L. The payback period and accounting rate of return methods represent non-discounted cash flow methods ◻ that lipnore the time value of money. u. The steps involved in analyzing capital projects include gathering data within a month, meeting to discuss whether management will support the project, implementing the project, and then conducting a review. At the review stage, net present value is calculated and compared to actual results. v . The longer the life of the investment, the higher the internal rate of return.

Not your question?Search it

## Solution

Expert Verified

3.8(227 votes)

William MyersElite · Tutor for 8 years

### Answer

k. False; l. True; m. False; n. True; o. True; p. False; q. True; r. True; s. False; t. True; u. False; v. False.

### Explanation

The questions focus on the concepts of capital budgeting, net present value (NPV), internal rate of return (IRR), payback period, accounting rate of return, and discounted cash flows. <br /><br />k) Capital budgeting is not primarily about planning for the issuance of capital stock. It's about making decisions regarding investments in long-term assets. So, this statement is false.<br /><br />l) Relevant information for long-term investment opportunities does indeed consist of information about the initial investment and the incremental future cash flows. So, this statement is true.<br /><br />m) The term "discounted cash flows" in capital budgeting refers to future cash flows that have been discounted back to their present value, not about taking discounts for early payment of merchandise. So, this statement is false.<br /><br />n) To find the net present value, you do indeed determine the total present value of the future cash flows and subtract the initial investment. So, this statement is true.<br /><br />o) If the net present value is positive, it means that the project is expected to earn at least the minimum desired rate of return, making the project acceptable. So, this statement is true.<br /><br />p) If the internal rate of return is greater than the cost of capital, the project is not too expensive but rather it is profitable and should be accepted. So, this statement is false.<br /><br />q) The payback period does represent the time required to recover the initial investment. So, this statement is true.<br /><br />r) Payback is used by some firms because it is simple and can be used in conjunction with the discounted cash flow methods. With risky projects, a company may indeed be more interested in the payback period than in total profitability. So, this statement is true.<br /><br />s) The accounting rate of return method uses income statement data to estimate the percentage return on the initial investment, not the time it will take to recover the initial investment. So, this statement is false.<br /><br />t) The payback period and accounting rate of return methods are indeed non-discounted cash flow methods that ignore the time value of money. So, this statement is true.<br /><br />u) The steps involved in analyzing capital projects typically include gathering data, meeting to discuss management support, implementing the project, and conducting a review. However, the net present value is usually calculated before the project is implemented, not at the review stage. So, this statement is false.<br /><br />v) The length of the life of the investment does not necessarily determine the internal rate of return. The IRR depends on the size and timing of cash flows, not just the lifespan of the investment. So, this statement is false.

## Step-by-step video

Question:

should be indifferent between the projects. K. Capital budgeting is primarily the procest of planning for the issuance of capital stoek. L. Relevant information cencerning longterm investment opportunities consists of information about the initial investment and the incremental future cash fows. Past data are useful only in assisting with the estimation of future ameunts. L. Relevant information cencerning longterm investment opportunities consists of information about the initial investment and the incremental future cash fows. Past data are useful only in assisting with the estimation of future ameunts. The m. The term "discounted cash nows," as used in capital budgeting, refers to taking all the discounts avaliable If payment of merchandise is made carty-within the discount period. m. The term "discounted cash nows," as used in capital budgeting, refers to taking all the discounts avaliable If payment of merchandise is made carty-within the discount period. False n. To find the net present value, you would determine the total present value of the future cash fows and subtract the initial investment. n. To find the net present value, you would determine the total present value of the future cash fows and subtract the initial investment. Tno a. If the net present value is positive, at least the minimum desired rate of return will be carned, and the project is acceptable. a. If the net present value is positive, at least the minimum desired rate of return will be carned, and the project is acceptable. True p. If the internal rate of return is greater than the cost of capital, the project is too expensive and should be rejected. p. If the internal rate of return is greater than the cost of capital, the project is too expensive and should be rejected. False 9. The payback period represents the time required to recover the initial investment. True 5. Payback is used by some firms because it is simple, it can be used in conjunction with the discounted cash fow methods, and with risky projects, a company may be more interested in the payback period than in total profitability. 5. Payback is used by some firms because it is simple, it can be used in conjunction with the discounted cash fow methods, and with risky projects, a company may be more interested in the payback period than in total profitability. True The accounting rate of return methe grad "L. Relevant information cencerning longterm investment opportunities consists of information about the initial investment and the incremental future cash fows. Past data are useful only in assisting with the estimation of future ameunts." The "m. The term "discounted cash nows," as used in capital budgeting, refers to taking all the discounts avaliable If payment of merchandise is made carty-within the discount period." False "n. To find the net present value, you would determine the total present value of the future cash fows and subtract the initial investment." Tno "a. If the net present value is positive, at least the minimum desired rate of return will be carned, and the project is acceptable." True "p. If the internal rate of return is greater than the cost of capital, the project is too expensive and should be rejected." False 9. The payback period represents the time required to recover the initial investment. True "5. Payback is used by some firms because it is simple, it can be used in conjunction with the discounted cash fow methods, and with risky projects, a company may be more interested in the payback period than in total profitability." True The accounting rate of return methe grad project's time that it will take to recover the initial investment. L. The payback period and accounting rate of return methods represent non-discounted cash flow methods ◻ that lipnore the time value of money. u. The steps involved in analyzing capital projects include gathering data within a month, meeting to discuss whether management will support the project, implementing the project, and then conducting a review. At the review stage, net present value is calculated and compared to actual results. v . The longer the life of the investment, the higher the internal rate of return.

Analysis:

1