1. Do all companies use the same tools to assess investment decisions/proposals? 1.Yes 2.No

2. Do you think that XM Satellite Holdings, Inc. prepared a detailed investment proposal/analysis to determine if it should launch its first satellite? 1.Yes 2.No

3. Can some of the assumptions that are made related to an investment, such as a useful life, have a significant impact on the investment decision? 1.Yes 2.No

4. Do you think that it is difficult for a company like XM Satellite Holdings, Inc. to prepare an investment proposal/analysis? 1.Yes 2.No

5. Do all companies use investment analysis to make decisions related to investments? 1.Yes 2.No

6. Capital investment evaluation methods can be grouped by methods that do not use present values and methods that do use present values. 1.True 2.False

7. The average rate of return method for investment valuation uses present values. 1.True 2.False

8. Investment valuation methods that ignore present values are often useful in evaluating capital investment proposals that have relatively short useful lives. 1.True 2.False

9. The primary disadvantage of the internal rate of return method is that the present values of the net cash flows over the entire useful life of the proposal are considered. 1.True 2.False

10. A short payback period is more desirable. 1.True 2.False

11. Qualitative considerations in investment analysis are most appropriate for non- strategic investments. 1.True 2.False

12. The final steps in the capital rationing process are ranking the proposals according to management’s criteria. 1.True 2.False

13. The process by which management plans, evaluates, and controls investments in fixed assets is called 1.sensitivity analysis 2.capital investment analysis 3.cost-benefit analysis 4.quantitative analysis

14. Which of the following investment evaluation methods uses present values? 1.Internal rate of return method 2.Cash payback method 3.Average rate of return method 4.Declining balance method

15. The investment evaluation method that divides the estimated annual average income by the average investment is called the 1.net present value method 2.internal rate of return method 3.average rate of return method 4.cash payback method

16. The net present value method 1.is the present value of the investment’s cash inflows 2.adds the investment’s initial cash outflow to the present value of its cash inflows 3.compares an investment’s initial cash outflow with the current value of its cash inflows 4.compares an investment’s initial cash outflow with the present value of its cash inflows

17. Which of the following factors does not complicate capital investment analysis? 1.Income taxes 2.Unequal proposal lives 3.Adequate financial information on the proposals 4.Leasing

18. The process by which management allocates funds among competing capital investment proposals is called 1.incremental analysis 2.capital rationing 3.cost-benefit analysis 4.differential analysis

19. A project will have a present value index greater than one when the net present value is 1.positive 2.negative 3.equal to zero 4.equal to one

20. Which of the following is an advantage of using the net present value method? 1.It is easy to calculate 2.It ignores the cash flows near the end of the investment’s useful life 3.It ignores the time value of money 4.It considers the time value of money

21. A series of equal net cash flows at fixed time intervals is called a(n) 1.return on investment 2.gross profit 3.annuity 4.internal rate of return

22. The internal rate of return for an investment is most easily calculated when 1.annual cash flows are not equal 2.annual cash flows are equal 3.when income taxes are involved in the investment analysis 4.when the cash flows involve multiple inflows and outflows