Question 11

1. 3 - 3: A firm seeks to accept projects with a high degree of liquidity, avoid the higher forecasting error associated with cash flows occurring in the distant future, and avoid projects that require a large amount of research and development expenses. This firm may be justified in using the ___________to evaluate its projects.

   	A.	IRR rule
   	B.	Payback period rule
   	C.	NPV rule
   	D.	AAR rule
   	E.	PI Rule

Question 12

1. 3 - 4: The profitability index (PI) rule can be best stated as:

   	A.	An investment is acceptable if its PI is greater than one
   	B.	An investment is acceptable if its PI is less than one
   	C.	An investment is acceptable if its PI is greater than the internal rate of return (IRR)
   	D.	An investment is acceptable if its PI is less than the net present value (NPV)

Question 13

1. 4 - 1: In capital budgeting analysis, the primary objective should be to choose projects that:

   	A.	Least affect the balance sheet of the company
   	B.	Maximize future cash inflows
   	C.	Maximize firm value
   	D.	Result in the highest net income
   	E.	Minimize initial cash outflows

Question 14

1. 4 - 2: A firm is considering a project which would increase accounts receivable by $10,000, accounts payable by $55,000, and inventory by $30,000. Which of the following is true?

   	A.	Net working capital has increased.
   	B.	Sales will increase.
   	C.	Payments to creditors will slow.
   	D.	Net working capital has decreased.
   	E.	This is a net use of cash

Question 15

1. 4 - 3: Which of the following methods does not involve an interest rate from any source?

   	A.	Payback period
   	B.	Profitability index
   	C.	Net present value
   	D.	Internal rate of return
   	E.	Discounted payback