46. Which of the following statements is true regarding the payback period?

A. The time value of money is considered when calculating the payback.

B. The payback analysis is more accurate than the net present value analysis.

C. The payback period is less accurate than the accounting rate of return.

D. The time value of money is not considered when calculating the payback.

Boccardi Inc., has invested in new pasta manufacturing equipment at a cost of $48,000. The equipment has an estimated useful life of eight years. Estimated annual sales and operating expenses related to the pasta equipment follow:

47. The estimated payback of the investment in the pasta equipment is:

A. 3.0 years.

B. 4.0 years.

C. 6.0 years.

D. 8.0 years.

48. The estimated accounting rate of return is:

A. 12.5%.

B. 18.0%.

C. 25.0%.

D. 33.3%.

49. In a capital budgeting decision, if a firm uses the net present value method and a 12% discount rate, what does a negative net present value indicate?

A. The proposal’s rate of return exceeds 12%.

B. The proposal’s rate of return is less than the minimum rate required.

C. The proposal earns a rate of return between 10% and 12%.

D. None of the above.

50. A capital budgeting decision method that considers the time value of money is the

A. accounting rate of return method.

B. return on stockholders’ equity method.

C. cash payback method.

D. internal rate of return method.

51. Which of the following is a true statement regarding the internal rate of return in capital budgeting?

A. It provides the same basic information as the net present value method.

B. It calculates the net present value of future cash flows.

C. It calculates the proposal’s rate of return.

D. It doesn’t consider the time value of money.

52. Which of the following is a true statement regarding the net present value method in capital budgeting?

A. It provides the same basic information as the accounting rate of return.

B. It calculates the present value of future cash flows.

C. It calculates the proposal’s rate of return.

D. It doesn’t consider the time value of money.

53. Sometimes when management decisions are reached the investment project with the highest NPV or IRR is not selected. This occurs because:

A. a lower IRR is a less risky investment.

B. the highest NPV is not necessarily the highest IRR.

C. qualitative factors override quantitative analysis techniques.

D. sometimes management makes the wrong decision.