Identify the true statements about the impact of inflation on capital budgeting decisions. More than one answer may be correct. Multiple select question. Inflation impact can be adjusted in the discount rate by accounting for inflation. Inflation does not affect capital investment projects with long lives. Inflation will affect all cash flows equally and hence its effect will cancel out. Ignoring inflation in estimating the cash inflows would lead to a bias against accepting capital budgeting projects.

Identify the true statements about the impact of inflation on capital budgeting decisions. More than one answer may be correct. Multiple select question. Inflation impact can be adjusted in the discount rate by accounting for inflation. Inflation does not affect capital investment projects with long lives. Inflation will affect all cash flows equally and hence its effect will cancel out. Ignoring inflation in estimating the cash inflows would lead to a bias against accepting capital budgeting projects.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 16MC: When using the NPV method for a particular investment decision, if the present value of all cash...

See similar textbooks

Similar questions

Identify the incorrect statement in connection to working capital management: A. Conservative financing policies use short-term funds to finance only part of fluctuating current assets. B. Long-term funds are more expensive and more risky than short-term funds . C. The objectives of working capital management are profitability and liquidity. D. Permanent current assets should be financed from long-term sources if a moderate policy is adopted.
How will a decrease in time preferences affect the loanable funds market? A. There will be an increase in the supply of loanable funds. B. There will be a decrease in the supply of loanable funds. C. There will be an increase in the demand of loanable funds. D. There will be a decrease in the demand of loanable funds.
When evaluating projects using internal rate of return,? A. projects having lower early-year cash flows tend to be preferred at higher discount rates. B. projects having higher early-year cash flows tend to be preferred at higher discount rates. C. projects having higher early-year cash flows tend to be preferred at lower discount rates. D. the discount rate and magnitude of cash flows do not affect internal rate of return.
Sophisticated capital budgeting techniques do not A. examine the size of the initial outlay. B. use net profits as a measure of return. C. explicitly consider the time value of money. D. take into account an unconventional cash flow pattern.
Which of the following is not a recommended solution if the comparison of projected cash flows with goals identifies a shortfall? a. Find additional income. b. Utilize the emergency fund. c. Cut back costs. d. Change goals. e. All of the above are recommended solutions.
Payback is considered an unsophisticated capital budgeting technique because it _______.
Risk in cash flow estimating for capital budgeting can be defined as: a. the chance that a cash flow will turn out to be worse than the estimate. b. the chance that a cash flow will turn out to be different than the estimate, either better or worse. c. the chance that the cash flows that turn out to be more favorable than the estimate won't totally offset the cash flows that turn out to be worse than the estimate. d. the chance that the NPV and/or IRR will turn out to be worse than the estimate. e. all of the above describe the risk in cash flow estimating.
Why the payback method is often considered inferior to discounted cash flow in capital investment appraisal? Select one: a. It is more difficult to calculate b. It does not calculate how long it will take to recoup the money invested c. It only takes into account the future income of a project d. None of the option e. It does not take account of the time value of money
Based on your understanding of the fAactors that affect the cost of money, Identify which of the following statement is true. a. higher inflation leads to lower interest rates. b. Interest is the price paid to borrow funds. c. Higher risk leads to lower interest rates.
Identify the true statements about the payback period method. More than one answer may be correct. Multiple select question. It is biased toward liquidity. It adjusts for the time value of money. It adjusts any risks associated with projects. It adjusts for uncertainty of later cash flows.
Why might DCF techniques not lead to proper capital budgeting decisions?
Which of the following is a problem associated with capital budgeting? Select all that apply. Long-term strategic planning for resource allocation Unsustainable budget infrastructure that will have an impact on future generations Miscalculating or poor estimation of projected costs Fluctuating economics and financial markets