27: The interest rate where interest is charged at the same frequency as the quo
ID: 2815654 • Letter: 2
Question
27: The interest rate where interest is charged at the same frequency as the quoted interest rate is the: A: nominal interest rate. B: real interest rate. C: compound interest rate. D: effective interest rate. 28: The constant chain of replacement assumption is used when: A: comparing mutually exclusive projects. B: comparing independent projects. C: the life of a project cannot be ascertained with certainty D: comparing mutually exclusive projects with unequal economic lives. 29: Which of the following statements is false? A: The constant chain of replacement model assumes that the incumbent machines and their replacements are absolutely identical. B: The different lives 'problem' in the constant chain of replacement model arises only for independent projects C: Retirement decisions involve evaluating when to abandon a project. D: In replacement decisions the company must decide when its existing assets should be replaced 30: Which of the following statements best describes the role of qualitative factors, such as company image, in the selection of projects? A: They are ignored because they are subjective. C: They must be quantified in some manner before they can be of some use. useful to decision-makers but management is unable to quantify them. D: They are only to be used when deciding between projects with identical net present values.Explanation / Answer
Explanation: Effective interest rate can be define an interest rate which is charged at the same frequency as the interest rate quoted by the banks.
Answer: D
If two or more than two mutually exclusive project have unequal lives, replacement chain method is used to take capital budgeting decision. Different lifespans of projects and their cash flows takes into account to make the final decision for example if a Project M with lifespan of 3 years and Project N with life span of 6 years are mutually exclusive project. To match the Project N’s lifespan of 6 years Project N’s data will be used to forecast next three years cash flows after this NPV will be calculated and final sensible decision will be taken.
Answer: D
Answer: C
Answer: B
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