1. Capital budgeting focuses on the sale of capital by incorporated hospitality companies.
a) True
b) False
2. Cash flow considerations in capital budgeting include which of the following?
a) The initial cost of the project
b) Incremental revenues from the project
c) The depreciation of the assets involved in the project
d) The reduction in other revenues caused by the project
e) Interest payments from notional debt to finance the project
f) The residual value of the project
3. Select the group of words missing from the statement below about Accounting Rate of Return:
“An approach to _______ capital budgeting decisions based on the average ______ projected ______ (project __________ less project expenses) divided by the _______ investment.”
a) Rejecting, Budgeted, Cash flow, Profits, Total
b) Evaluating, Annual, Income, Cash Inflow, Profits, Total
c) Evaluating, Annual, Income, Revenues, Average
d) Rejecting, Budgeted, Income, Revenues, Average
4. When mutually exclusive projects are considered and the net present value and the internal rate of return methods give conflicting results, the results of the net present value method should generally be followed.
a) True
b) False
5. Identify two disadvantages of the Payback method from the following list of options:
a) No account is taken of the relative size of the investment
b) It is generally difficult to understand by non-finance managers
c) No account is taken of the time value of money
d) The methodology can produce multiple results