True-False

Indicate whether each statement is true (T) or false (F).

___ 1. The planning and control tools used for year-to-year operating decisions are well suited for capital-budgeting decisions.

___ 2. The present value of $1 million to be received ten years from now is lower if computed at a discount rate of 10% rather than 14%.

___ 3. Assume a required rate of return of 12% is used to compute the NPV of a project. If NPV is negative, IRR is less than 12%.

___ 4. The payback method does not consider a projects cash flows after the payback period.

___ 5. If the income tax rate for a profitable company is 30%, a depreciation deduction of $10,000 results in a tax savings of $7,000 (before considering time value of money).

___ 6. For a profitable company, the gain or loss on the recovery of working capital in a capital-budgeting project is subject to income tax.

____ 7. It is consistent to use NPV as best for capital-budgeting decisions and then use AARR to evaluate a managers performance over short time horizons.