Consider the following statements about capital budgeting.
a.___ is (are) often used by management to screen potential investments from those less desired.
b.___ does not consider the asset’s profitability.
c.___ is calculated by dividing the average amount invested by the asset’s average annual operating income.
d.___ is the rate of return, using discounted cash flows, a company can expect to earn by investing in the asset.
e.___ In capital rationing decisions, the profitability index must be computed to compare investments requiring different initial investments when the method is used.
f.___ ignores any residual value.
g.___ is the interest rate that makes the NPV of an investment equal to zero.
h.___ highlights risky investments.
i.___ shows the effect of the investment on the company’s accrual-based income.
Requirement
1. Fill in each statement with the appropriate capital budgeting method: Payback period, ROR, NPV, or IRR.

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December 16, 2011

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