1. The internal rate of return method assumes that the cash flows generated by t

Question

1. The internal rate of return method assumes that the cash flows generated by the project are immediately reinvested elsewhere at a rate of return that equals the internal rate of return.

T/F

2.The required rate of return is the minimum rate of return that an investment project must yield to the acceptable.

T/F

3.

When discounted cash flow methods of capital budgeting are used, the working capital required for a project is ordinarily counted as a cash inflow at the beginning of the project and as a cash outflow at the end of the project.

T/F

4.An investment project with a project profitability index of -0.05 has an internal rate of return that is less than the discount rate.

T/F

5.In calculating the payback period where new equipment is replacing old equipment, any salvage value to be received on disposal of the old equipment should be added to the cost of the new equipment.

T/F

Explanation / Answer

1) True

2)True

3)False. Working capital is counted as cash outflow at the begining of the project and cash inflow at the end of the project

4)False. Negative profitability index of the project indicates taht the IRR is higher than the discount rate

5)False. Since salvage value on sale of equipment is cash inflow, it should be deducted from cost of new equipment

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