The computations involved in the net present value method of analyzing capital investment proposals are more involved than those for the average rate of return method. O True False
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- What are the principal objections to the use of the average rate of return method in evaluating capital investment proposals?How does the size of the initial investment affect the internal rate of return on the net present value models?What are the major disadvantages of the use of the internal rate of return method of analyzing capital investment proposals?
- Which of the following are present value methods of analyzing capital investment proposals? a. internal rate of return and average rate of return b. average rate of return and net present value c. net present value and cash payback d. net present value and internal rate of returnMethods that ignore the time value of money in capital investment appraisal include which of the following? a. Net present valueb. Discounted payback c. Average rate of return d. All of the aboveGenerally, the ____ is considered to be a more realistic reinvestment rate than the ____. a. risk-free rate; cost of capital b. risk-free rate; internal rate of return c. cost of capital; internal rate of return d. internal rate of return; cost of capital
- Discuss the advantages and disadvantages of using (a) payback, (b) net present value and (c ) internal rate of return as a method of capital investment analysis.Explain the relationship between JENSEN's alpha and the security marketline of the Capital asset pricing model (CAPM).If the internal rate of return (IRR) is less than the cost of capital, then the investment is acceptable. Group of answer choices True False
- Which of the following is not a method for incorporating risk analysis into capital budgeting? a. Positive/Negative analysis b. Monte Carlo simulations c. Scenario analysis d. Sensitivity analysis e. Decision tree modelsDiscuss the main features of Capital Asset Pricing Model (CAPM) and comment on the validity of the model in the real world.Make a simple example of the following: a. Capital Gain (or Losses) b. Expected Return c. Real Return d. Risk-free Return e. Required Return f. Holding Period Return