Stern Associates is considering a project that has the following cash flow data.What is the project's payback? \[\begin{array} { l c c c c c c } \text { Year } & 0 & 1 & 2 & 3 & 4 & 5 \\ \hline \text { Cash flows } & - \$ 975 & \$ 300 & \$ 310 & \$ 320 & \$ 330 & \$ 340 \end{array}\]

A) 2.54 years B) 2.42 years C) 3.83 years D) 3.14 years E) 3.61 years A) 2.54 years B) 2.42 years C) 3.83 years D) 3.14 years E) 3.61 years

Resnick Inc.is considering a project that has the following cash flow data.What is the project's payback? \[\begin{array} { l c c c c } \text { Year } & 0 & 1 & 2 & 3 \\ \hline \text { Cash flows } & - \$ 475 & \$ 200 & \$ 200 & \$ 200 \end{array}\]

A) 2.61 years B) 1.97 years C) 2.42 years D) 2.26 years E) 2.38 years A) 2.61 years B) 1.97 years C) 2.42 years D) 2.26 years E) 2.38 years

Exam 11: The Basics of Capital Budgeting

Conflicts between two mutually exclusive projects occasionally occur,where the NPV method ranks one project higher but the IRR method puts the other one first.In theory,such conflicts should be resolved in favor of the project with the higher IRR.

(True/False)

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Question 61

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows,with one outflow followed by a series of inflows.

(Multiple Choice)

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Question 62

Yonan Inc.is considering Projects S and L,whose cash flows are shown below.These projects are mutually exclusive,equally risky,and not repeatable.If the decision is made by choosing the project with the shorter payback,some value may be forgone.How much value will be lost in this instance? Note that under some conditions choosing projects on the basis of the shorter payback will not cause value to be lost. $\text { WACC: } \quad 10.25 \%$ 0 1 2 3 4 -\ 950 \ 500 \ 800 \ 0 \ 0 -\ 2,100 \ 400 \ 800 \ 800 \ 1,000

(Multiple Choice)

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Question 63

Thorley Inc.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's projected IRR can be less than the WACC or negative,in both cases it will be rejected. Year 0 1 2 3 4 5 Cash flows -\ 1,100 \ 325 \ 325 \ 325 \ 325 \ 325 ?

(Multiple Choice)

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Question 64

Both the regular and the modified IRR (MIRR)methods have wide appeal to professors,but most business executives prefer the NPV method to either of the IRR methods.

(True/False)

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Question 65

Warr Company is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's projected IRR can be less than the WACC or negative,in both cases it will be rejected. ? Year 0 1 2 3 4 Cash flows -\ 1540 \ 400 \ 400 \ 400 \ 400 ?

(Multiple Choice)

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Question 66

Ingram Electric Products is considering a project that has the following cash flow and WACC data.What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative),in which case it will be rejected. WACC: 7.00\% Year 0 1 2 3 Cash flows -\ 800 \ 350 \ 350 \ 350

(Multiple Choice)

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Question 67

The phenomenon called "multiple internal rates of return" arises when two or more mutually exclusive projects that have different lives are being compared.

(True/False)

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Question 68

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows,with one outflow followed by a series of inflows.

(Multiple Choice)

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Question 69

Stern Associates is considering a project that has the following cash flow data.What is the project's payback? Year 0 1 2 3 4 5 Cash flows -\ 975 \ 300 \ 310 \ 320 \ 330 \ 340

(Multiple Choice)

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Question 70

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows,with one outflow followed by a series of inflows.

(Multiple Choice)

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Question 71

Hindelang Inc.is considering a project that has the following cash flow and WACC data.What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative),in which case it will be rejected. WACC: 12.50\% Year 0 1 2 3 4 Cash flows -\ 850 \ 300 \ 320 \ 340 \ 360

(Multiple Choice)

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Question 72

Assuming that their NPVs based on the firm's cost of capital are equal,the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life.

(True/False)

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Question 73

A firm should never accept a project if its acceptance would lead to an increase in the firm's cost of capital (its WACC).

(True/False)

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Question 74

Which of the following statements is CORRECT?

(Multiple Choice)

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Question 75

Which of the following statements is CORRECT?

(Multiple Choice)

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Question 76

Anderson Systems is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that if a project's projected NPV is negative,it should be rejected. WACC: 11.00\% Year 0 1 2 3 Cash flows -\ 1,000 \ 500 \ 500 \ 500

(Multiple Choice)

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Question 77

Resnick Inc.is considering a project that has the following cash flow data.What is the project's payback? Year 0 1 2 3 Cash flows -\ 475 \ 200 \ 200 \ 200

(Multiple Choice)

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Question 78

Project X's IRR is 19% and Project Y's IRR is 17%.The projects have the same risk and the same lives,and each has constant cash flows during each year of their lives.If the WACC is 10%,Project Y has a higher NPV than X.Given this information,which of the following statements is CORRECT?

(Multiple Choice)

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Question 79

Normal Projects S and L have the same NPV when the discount rate is zero.However,Project S's cash flows come in faster than those of L.Therefore,we know that at any discount rate greater than zero,L will have the higher NPV.

(True/False)

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Question 80

Conflicts between two mutually exclusive projects occasionally occur,where the NPV method ranks one project higher but the IRR method puts the other one first.In theory,such conflicts should be resolved in favor of the project with the higher IRR.

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows,with one outflow followed by a series of inflows.

Thorley Inc.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's projected IRR can be less than the WACC or negative,in both cases it will be rejected. Year 0 1 2 3 4 5 Cash flows -\ 1,100 \ 325 \ 325 \ 325 \ 325 \ 325 ?

Both the regular and the modified IRR (MIRR)methods have wide appeal to professors,but most business executives prefer the NPV method to either of the IRR methods.

Warr Company is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's projected IRR can be less than the WACC or negative,in both cases it will be rejected. ? Year 0 1 2 3 4 Cash flows -\ 1540 \ 400 \ 400 \ 400 \ 400 ?

The phenomenon called "multiple internal rates of return" arises when two or more mutually exclusive projects that have different lives are being compared.

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows,with one outflow followed by a series of inflows.

Stern Associates is considering a project that has the following cash flow data.What is the project's payback? Year 0 1 2 3 4 5 Cash flows -\ 975 \ 300 \ 310 \ 320 \ 330 \ 340

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows,with one outflow followed by a series of inflows.

Assuming that their NPVs based on the firm's cost of capital are equal,the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life.

A firm should never accept a project if its acceptance would lead to an increase in the firm's cost of capital (its WACC).

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Anderson Systems is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that if a project's projected NPV is negative,it should be rejected. WACC: 11.00\% Year 0 1 2 3 Cash flows -\ 1,000 \ 500 \ 500 \ 500

Resnick Inc.is considering a project that has the following cash flow data.What is the project's payback? Year 0 1 2 3 Cash flows -\ 475 \ 200 \ 200 \ 200

Project X's IRR is 19% and Project Y's IRR is 17%.The projects have the same risk and the same lives,and each has constant cash flows during each year of their lives.If the WACC is 10%,Project Y has a higher NPV than X.Given this information,which of the following statements is CORRECT?

Normal Projects S and L have the same NPV when the discount rate is zero.However,Project S's cash flows come in faster than those of L.Therefore,we know that at any discount rate greater than zero,L will have the higher NPV.

An Overview of Financial Management

Financial Markets and Institutions

Financial Statements,cash Flow and Taxes

Analysis of Financial Statements

Time Value of Money

Interest Rates

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

Cash Flow Estimation and Risk Analysis

Real Options and Other Topics in Capital Budgeting

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Derivatives and Risk Management

Multinational Financial Management

Hybrid Financing: Preferred Stock,leasing,warrants,and Convertibles

Mergers and Acquisitions

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