Quiz Ch 08 – Soft Capital Rationing Characteristics
Fundamentals of Corporate Finance
Brealey, Myers, and Marcus
10th Edition
What are the features of soft capital rationing?
What are the features of soft capital rationing?
True or false: The NPV and internal rate of return methods underscore the significance of cash flow timing in shaping project value.
True or false: When assessing assets with different lifespans, the preferred option is often the one that incurs the lowest equivalent annual cost.
True or false: When faced with the choice between projects of varying durations, it’s advisable to standardize them by calculating the equivalent annual annuity or benefit for both projects.
True or false: In the decision to replace an aging machine with a new one, it’s crucial to evaluate the equivalent annual cost of operating the old machine and compare it with the equivalent annual cost of the new machine.
True or false: The payback period takes into consideration all the cash flows associated with a project.
True or false: In cases where a project yields multiple IRRs, the lowest IRR is NOT a valid indicator.
True or false: The IRR represents the rate of return on the investment’s cash flows and is also synonymous with the opportunity cost of capital.
True or false: In the trial-and-error process of calculating IRR, it is typically advisable to increase discount rates when NPV is positive.
True or false: Choosing projects based on NPV, unlike IRR, ensures a consistently accurate accept-reject decision.