Reference no: EM132548798
Question 1: With regard to the discount rate and the net present value method, which of the following statements is TRUE?
A.) As the discount rate increases, the present value of a given future cash flow decreases.
B.) As the discount rate increases, the present future value of a given future cash flow remains the same.
C.) As the discount rate decreases, the present future value of a given future cash flow decreases.
D.) As the discount rate increases, the present future value of a given future cash flow increases.
Question 2: With regard to the terminology introduced in the chapter, which of the following statements is FALSE?
A.) Discounting is the process of computing the present value of a future cash flow and gives recognition to the time value of money, making it possible to meaningfully add together cash flows that occur at different times.
B.) Unlike other common capital budgeting methods, discounted cash flow methods recognize the time value of money and take into account all future cash flows.
C.) The "time value of money" refers to the fact that a dollar received today is less valuable than a dollar received in the future simply because a dollar received today yields less than a dollar received in the future.
D.) In the case of the net present value method, the cost of capital is used as the discount rate. If the net present value of the project is positive, then the project is acceptable because its rate of return is greater than the cost of capital.
Question 3: Which of the following statements regarding differential versus total cost approaches is TRUE?
A.) The total cost approach includes all costs, whether relevant or not, but only relevant benefits.
B.) The differential cost approach is generally thought to be quicker because all irrelevant costs and benefits are ignored, so only the relevant costs and benefits are compared.
C.) The total cost approach is preferable because it's also important to examine costs and benefits that do not change between the alternative outcomes.
D.) The differential cost approach does not paint as a picture as the total cost approach because it exludes so many costs and benefits.
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