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95 indicate whether each of the following statements is true or false 1 false an ord 4301727

 

95. Indicate whether each of the following statements is true or false.

1. False

An ordinary annuity assumes that cash flows occur at the beginning of each period.

 

2. False

To say that an investment earns the desired rate of return assumes that all cash flows generated by the investment are reinvested at the desired rate of return.

 

3. False

Managers should not use two different methods in evaluating capital investment decisions because different methods generally give different results.

 

4. True

Copley Corporation uses a required rate of return of 10% for its capital investment decisions. A particular project had a negative net present value. For this project, the actual rate of return was expected to be more than 10%.

 

5. False

The net present value of a capital investment project is calculated by subtracting the present value of expected cash inflows from the cost of the investment.

 

 

 

96. Indicate whether each of the following statements is true or false.

1. True

If two capital investments both have positive net present values, both offer an actual rate of return that is higher than the required rate of return.

 

2. False

Company M has two potential capital investments, each of which has a positive net present value. M can only accept one of the investments. In this situation, it should always accept the project that has the higher net present value.

 

3. False

Net present value is calculated by dividing the present value of cash inflows by the present value of cash outflows associated with a capital investment.

 

4. True

The present value index can be used to compare different capital investment projects.

 

5. False

The higher the present value index, the lower the rate of return per dollar invested in the project.

 

 

 

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