True or False: 1. A capital investment decision is essentially a decision to exc

Question

True or False: 1. A capital investment decision is essentially a decision to exchange current cash outflows for future cash inflows.

2. The time value of money concept recognizes the fact that the present value of a dollar to be received in the future is worth more than a dollar.

3. The compensation a company receives for investing in capital assets is referred to as a return on investment.

4. Because of the expense of applying multiple techniques, managers should use a single capital budgeting technique to analyze potential capital investments.

5. A project's net present value can be found by subtracting the cost of the project from the total present value of the future cash flows generated by the project.

6. When a capital investment is expected to provide unequal annual cash inflows, the payback period cannot be calculated.

7. The payback method shows how long will be required to recover the cost of an investment in a capital asset.

8. A post audit should be performed at the end of a capital investment project to determine whether the expected results were actually achieved.

9. The assumption regarding ordinary annuities is that cash flows occur at the end of each period.

10. The payback method of evaluating capital investments measures the recovery of the investment, but it does not measure profitability.

Explanation / Answer

(1) TRUE

(2) TRUE

(3) TRUE

(4) FALSE

(5) FALSE

(6) FALSE

(7) TRUE

(8) FALSE

(9) FALSE

(10) TRUE

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