Describe questions on capital budgeting decisions

1. When using the payback method, any cash flows for a project that occur after the payback period are not considered in computing the payback period for that project.

a. True

b. False

2. When making preference decisions about competing investment proposals, the project profitability index is superior to the internal rate of return.

a. True

b. False

3. If salvage value is ignored in depreciating an asset for tax purposes, any sales proceeds received at the end of the life of the asset are fully taxable as income.

a. True

b. False

4. If a company is operating at a profit, the cash inflow resulting from the depreciation tax shield is computed by multiplying the depreciation deduction by one minus the tax rate.

a. True

b. False

5. The present value of a given future cash flow will increase as the discount rate decreases.

a. True

b. False

6. The release of working capital at the termination of an investment project is not a taxable cash inflow.

a. True

b. False

7. If the internal rate of return exceeds the required rate of return for a project, then the net present value of that project is positive.

a. True

b. False

8. The simple rate of return is the same as the internal rate of return.

a. True

b. False

9. The salvage value of new equipment should not be considered when using the internal rate of return method to evaluate a project.

a. True

b. False