9. Which of the following is another name for the minimum desired rate of return
ID: 2783582 • Letter: 9
Question
9. Which of the following is another name for the minimum desired rate of return? A. Discount rate B. Required rate of return C. Hurdle rate D. All of the above 10. Which of the following capital budgeting methods is based on cash flows, profitability. and the time value of money? A. Payback and accounting rate of retum B. Payback and net present value C. Accounting rate of return and internal rate of return D. Net present value and internal rate of return 11. Which term below is best described as the "rate of return that makes the NPV of a capital budgeting project equal to zero" A. Accounting rate of return B. Discount rate C. Internal rate of return D. Net present value 12·The net present value method assumes that all cash inflows can be immediately reinvested in new projects at the A. Cost of the corporation's common stock. B. Hurdle rate. C. Internal rate of return. D. Cost of the corporation's long-term debt.Explanation / Answer
Answer 9. c. Hurdle rate
The another name for minimum desired rate of return is Hurdle rate. Hurdle rate is the minimum rate that a company targets to earn or expects to earn from an investment.
Answer 10. D. net present value and Internal rate of return.
The capital budgeting method based on cashflow, profitability and time value of money are NPV and IRR as payback period and accounting rate of return doesnt take into account the time value of money. Whereas NPV gives PV by discounting the cashflows or the profits for a year and IRR also discounts the cashflows.
Answer 11. c. Internal rate of return
The rate of return that makes the NPV of a capital budgeting project equal to zero is IRR i.e. internal rate of return. IRR is the rate at which the NPV is zero of all the future cashflows of a project.
Answer 12. d. cost of the corporations long term debt
The net present value method assumes that all inflows can be immediately reinvested in new project at the risk free rate or the corporations debt rate. The IRR method assumes that all inflows can be immediately reinvested in new project at the internal rate of return.
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