C214 Topic 11 Question and answers
100% correct 2026
parts of the capital budgeting calculation - correct answer ✔Calculating annual cash flows for the life
of the new project.
Calculating the initial cost of the new project to start.
Calculating the cash flow when the firm terminates the project
The terminal cash flow is - correct answer ✔The cash flows associated with unwinding the project
Capital budgeting is the - correct answer ✔Process of deciding which projects increase firm value
When evaluating a potential capital project, what should be considered? - correct answer ✔Timing of
the cash flows.
Size of the initial investment.
Riskiness of the project
Which one of the following should be included in the capital budgeting calculation? - correct answer
✔The cost of scraping an old machine to replace with a new machine.
The value and sale of the new machine at the end of the project is - correct answer ✔part of terminal
cash flows not differential cash flows.
A change in the depreciable schedule will most likely change the annual depreciation expense which will
impact - correct answer ✔tax expense, an increase in the marginal tax rate will change tax expense,
and a decrease in the projected annual revenue will decrease differential cash flows
payback period - correct answer ✔Does not consider time value of money.
, Firm cutoffs are subjective.
Does not consider any required rate of return.
essential to evaluate projects - correct answer ✔Incorporating the required rate of return.
Considering time value of money.
Including all cash flows of the project.
If ranking conflicts occur among payback period, NPV and IRR, you generally should make a decision
based on - correct answer ✔NPV
Describes a problem associated with IRR (Internal Rate of Return) - correct answer ✔IRR does not
correctly rank mutually exclusive projects.
The depreciable asset (aka depreciable base) in the initial outlay calculation is the - correct answer
✔Purchase price of a new asset + shipping/installation cost
Initial outlay for a capital project is calculated as - correct answer ✔Purchase price of the asset +
Shipping/Installation + Investment in WC - Net Proceeds from Sale of Old Asset
The weaknesses of the payback approach are that the method does not - correct answer ✔1)
incorporate required rate/risk adjustment
2) consider time value of money
3) consider all the cash flows.
One of the weaknesses of payback period is that - correct answer ✔The time value of money is not
considered.
100% correct 2026
parts of the capital budgeting calculation - correct answer ✔Calculating annual cash flows for the life
of the new project.
Calculating the initial cost of the new project to start.
Calculating the cash flow when the firm terminates the project
The terminal cash flow is - correct answer ✔The cash flows associated with unwinding the project
Capital budgeting is the - correct answer ✔Process of deciding which projects increase firm value
When evaluating a potential capital project, what should be considered? - correct answer ✔Timing of
the cash flows.
Size of the initial investment.
Riskiness of the project
Which one of the following should be included in the capital budgeting calculation? - correct answer
✔The cost of scraping an old machine to replace with a new machine.
The value and sale of the new machine at the end of the project is - correct answer ✔part of terminal
cash flows not differential cash flows.
A change in the depreciable schedule will most likely change the annual depreciation expense which will
impact - correct answer ✔tax expense, an increase in the marginal tax rate will change tax expense,
and a decrease in the projected annual revenue will decrease differential cash flows
payback period - correct answer ✔Does not consider time value of money.
, Firm cutoffs are subjective.
Does not consider any required rate of return.
essential to evaluate projects - correct answer ✔Incorporating the required rate of return.
Considering time value of money.
Including all cash flows of the project.
If ranking conflicts occur among payback period, NPV and IRR, you generally should make a decision
based on - correct answer ✔NPV
Describes a problem associated with IRR (Internal Rate of Return) - correct answer ✔IRR does not
correctly rank mutually exclusive projects.
The depreciable asset (aka depreciable base) in the initial outlay calculation is the - correct answer
✔Purchase price of a new asset + shipping/installation cost
Initial outlay for a capital project is calculated as - correct answer ✔Purchase price of the asset +
Shipping/Installation + Investment in WC - Net Proceeds from Sale of Old Asset
The weaknesses of the payback approach are that the method does not - correct answer ✔1)
incorporate required rate/risk adjustment
2) consider time value of money
3) consider all the cash flows.
One of the weaknesses of payback period is that - correct answer ✔The time value of money is not
considered.
