Question

1. Which One is False?

a. The Desired Rate of Return is also referred to as the Internal Rate of Return.

b. A Capital Project is a Costly Expenditure used to Acquire Assets that will benefit an Organization for Many Years in the Future.

c. Capital Budgeting is the Planning and Decision Process used to make Capital Investment Decisions.

d. The Decision to Build a New Factory is a Capital Budget Decision.

2. Which One is False?

a. A Positive Net Present Value (NPV) indicates that the Internal Rate of Return is greater than the Required Rate of Return.

b. The Term “Cost of Capital” means the Same as the Internal Rate of Return.

c. The Mortgage Interest Paid on a Home Loan is Deductible on a US Federal Income Tax Return.

d. The Term “Discount Rate” means the Same as the Required Rate of Return.

Answer 1

1) Desired rate of return is the rate of return which is the investors expect to earn from the investment. Where is internal rate of return the rate at which the net present value will be zero.

Therefore desired rate of return is not the same as internal rate of return.

also capital project is a cost expenditure which is used to acquire asset and through which it will benefit organisation for many years in the future.

capital budgeting is a type of planning which is used to make capital investment decision and decision to build a new factory is called as capital budgeting decision.

Therefore the correct option is A

2) A positive net present value indicates that the required rate of return is higher than the internal rate of return because at the internal rate of return the net present value is zero and if the net present value is positive it means that required rate of return is higher than the internal rate of return.

Also cost of capital is same as internal rate of return. Moreover discount rate means the same as required rate of return at which the cash flows are discounted. mortgage interest paid on home loan is deductible on US federal income tax return.

Therefore the correct option is A

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