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True/False



This activity contains 10 questions.

Question 1.
A capital budget spans only a one-year period.


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Question 2.
The payback method allows for managers to highlight liquidity.


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Question 3.
The accrual accounting rate of return is the method that is based most closely on the information in the financial statements.


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Question 4.
Managers using discounted cash flow methods to make capital budgeting decisions make the same decisions that they would make in using the accrual accounting rate-of-return methods.


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Question 5.
In determining whether to keep a machine or replace it, the original cost of the machine is always a relevant factor.


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Question 6.
In the net present value (NPV) method, after-tax cash flows should be used instead of pre-tax cash flows when taxes are a consideration.


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Question 7.
In calculating the net initial investment cash flows, any increase in working capital required for the project should be included.


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Question 8.
Cash received from the disposal of old equipment is not relevant to a decision to buy a replacement.


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Question 9.
A decrease in the tax rate will decrease the net present value (NPV) for a given capital budgeting project.


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Question 10.
It is possible to use the net present value in an analysis of customer profitability.


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