Did you know that Amazon is offering 6 months of Amazon Prime - free two-day shipping, free movies, and other benefits - to students? One of the biggest obstacles to correctly solving time value of money problems is identifying the cash flows and their timing.

True or False The discounted cash flow methods for capital budgeting are generally considered superior to the payback period and the ARR because they consider the time value of money. True or False Capital budgeting methods will not work with unequal cash flows during the capital assets life.

Other methods must be utilized in those cases. True or False A company is evaluating a variety of different capital investment opportunities. The company can only choose one project due to limited funds.

What would be the best capital budgeting method for this company to use to select a project? Accounting rate of return method C. Net present value method D. Profitability index Which of the following capital budgeting methods uses accrual accounting income?

Which one of the following capital budgeting models considers both profitability and the time value of money? Accounting rate of return C. Net present value D. Both a and c are correct Which of the following capital budgeting models is generally the simplest to compute?

Net present value C. Internal rate of return D. Accounting rate of return Which of the following capital budgeting methods is based on cash flows, profitability, and the time value of money? Payback and accounting rate of return 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 Which of the following is generally considered to be the most superior method for making capital budgeting decisions? Net present value method B. Incremental method Which term below is best described as managements minimum desired rate of return on an investment?

Net present value Which term below is best described as a measure of profitability computed by dividing the average annual operating income by the amount of the investment?Account Types. Typical financial statement accounts with debit/credit rules and disclosure conventions. Chapter 5: Time Value of Money.

Multiple Choice Questions 1. What is the total amount accumulated after three years if someone invests $1, today with a5/5(2). • Principle 1: Money Has a Time Value. – This chapter applies the time value of money concepts to annuities, perpetuities and complex cash flows. • Principle 3: Cash Flows Are the Source of Value.

– This chapter introduces the idea that principle 1 and. When reading through a time value of money problem you should always stop when you come to a number.

Write down (and label) that number to the side of the problem. That way, you will have separated the values from the text. C 1 4 $1, × = $1, 2 3 1, × = 1, 3 2 1, × = 1, 4 1 1, × = 2, $6, Calculator Solution: $6, Chapter 4 Time Value of Money 85 (b) If payments are made at the beginning of each period the present value of each of the end-of- period cash flow streams will be multiplied by (1.

Money has time value because a sum of money to be received in future is more valuable than the same amount today.

The process of compounding assumes discounting at same rate.

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Chapter 3 Multiple-Choice Quiz