MGMT 310 Test Bank Foundations of Finance, 8e, Global Edition, (Keown/Martin/Petty) Chapter 10 Capital Investment Decision Analysis-I

) Free cash flows represent the benefits generated from accepting a capital-budgeting proposal. Answer: TRUE Diff: 1 Keywords: Capital Budgeting, Free Cash Flow AACSB: Reflective thinking skills Learning Objective 2 1) The most critical aspect in determining the acceptability of a capital budgeting project is the impact the project will have on the company's net income over the projects entire useful life. Answer: FALSE Diff: 1 Keywords: Income vs. Cash Flow AACSB: Reflective thinking skills 2) Advantages of the payback period include that it is easy to calculate, easy to understand, and that it is based on cash flows rather than on accounting profits. Answer: TRUE Diff: 1 Keywords: Payback Period AACSB: Reflective thinking skills 3) If project A generates $10 million of free cash flow over its five year useful life and project B generates $8 million of free cash flow over its useful life, then Project A will have a shorter payback period than Project B, assuming both projects require the same initial investment. Answer: FALSE Diff: 1 Keywords: Payback Period AACSB: Analytic skills 4) A project with a payback period of four years is acceptable as long as the company's target payback period