Question 1

The development stage requires estimating relevant cash inflows and outflows.

Accepted Answer

A) True 
 B)False

Question 2

In Excel, you find the IRR using the net present value function with a discount rate of zero.

Accepted Answer

A) True 
 B)False

Question 3

Excel calculates NPV exactly the same way as it is calculated in the textbook.

Accepted Answer

A) True 
 B)False

Question 4

A firm's cost of capital is the discount rate used in the evaluation of capital budgeting projects using payback and IRR.

Accepted Answer

A) True 
 B)False

Question 5

The development stage involves discussing the pros and cons of each project.

Accepted Answer

A) True 
 B)False

Question 6

The majority of capital budgeting projects are short-lived projects.

Accepted Answer

A) True 
 B)False

Question 7

The stage in the capital budgeting process that requires estimating relevant cash inflows and outflows and discussing the pros and cons of each project is called the _____________ stage.

Accepted Answer

A)  follow-up. 
B)  selection. 
C)  identification. 
D)  development. 
A)  follow-up. 
B)  selection. 
C)  identification. 
D)  development.

Question 8

The profitability index is also sometimes referred to as the benefit/cost ratio.

Accepted Answer

A) True 
 B)False

Question 9

A firm's cost of capital is discount rate used in the evaluation of capital budgeting projects using NPV and IRR.

Accepted Answer

A) True 
 B)False

Question 10

It is possible for a set of financial data to have more than one IRR value.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is correct?

Accepted Answer

A)  The NPV and IRR methods will only sometimes agree on whether a project enhances or harms shareholder wealth. 
B)  If a project has a positive NPV, its IRR will always be less than the cost of capital. 
C)  If a project has a negative NPV, its IRR will always be less than the cost of capital. 
D)  There is always a conflict between NPV and IRR in the case of mutually exclusive projects. 
A)  The NPV and IRR methods will only sometimes agree on whether a project enhances or harms shareholder wealth. 
B)  If a project has a positive NPV, its IRR will always be less than the cost of capital. 
C)  If a project has a negative NPV, its IRR will always be less than the cost of capital. 
D)  There is always a conflict between NPV and IRR in the case of mutually exclusive projects.

Question 12

A capital budgeting project's cash flows, including the total up-front cost of the project, are typically known with certainty before the project starts.

Accepted Answer

A) True 
 B)False

Question 13

Whenever the net present value of a project is positive, the profitability index is greater or equal to 1.0.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is true of sunk costs?

Accepted Answer

A)  not included in initial cash flow 
B)  similar to opportunity costs 
C)  often combined with terminal cash flow 
D)  deciding factor in most project decisions 
A)  not included in initial cash flow 
B)  similar to opportunity costs 
C)  often combined with terminal cash flow 
D)  deciding factor in most project decisions

Question 15

If a project has a positive net present value (NPV), then the profitability index is:

Accepted Answer

A)  greater than one 
B)  less than one 
C)  equal to one 
D)  negative 
A)  greater than one 
B)  less than one 
C)  equal to one 
D)  negative

Question 16

Enhancement occurs when a project robs cash flow from the firm's existing line of business.

Accepted Answer

A) True 
 B)False

Question 17

A firm is evaluating a proposal which has an initial investment of $50,000 and has cash flows of $15,000 per year for five years. The payback of the project is:

Accepted Answer

A)  1.5 years 
B)  2 years 
C)  3.3 years 
D)  4 years 
E)  none of the above 
A)  1.5 years 
B)  2 years 
C)  3.3 years 
D)  4 years 
E)  none of the above

Question 18

The selection stage involves applying the appropriate capital budgeting techniques to help make a final decision.

Accepted Answer

A) True 
 B)False

Question 19

Expansion projects involving new areas and product lines are usually associated with greater cash inflow uncertainty.

Accepted Answer

A) True 
 B)False

Question 20

MIRR rankings of mutually exclusive projects with comparably sized initial investments will agree with the NPV rankings of those projects.

Accepted Answer

A) True 
 B)False

The development stage requires estimating relevant cash inflows and outflows.

In Excel, you find the IRR using the net present value function with a discount rate of zero.

Excel calculates NPV exactly the same way as it is calculated in the textbook.

A firm's cost of capital is the discount rate used in the evaluation of capital budgeting projects using payback and IRR.

The development stage involves discussing the pros and cons of each project.

The majority of capital budgeting projects are short-lived projects.

The stage in the capital budgeting process that requires estimating relevant cash inflows and outflows and discussing the pros and cons of each project is called the _____________ stage.

The profitability index is also sometimes referred to as the benefit/cost ratio.

A firm's cost of capital is discount rate used in the evaluation of capital budgeting projects using NPV and IRR.

It is possible for a set of financial data to have more than one IRR value.

Which of the following statements is correct?

A capital budgeting project's cash flows, including the total up-front cost of the project, are typically known with certainty before the project starts.

Whenever the net present value of a project is positive, the profitability index is greater or equal to 1.0.

Which of the following is true of sunk costs?

If a project has a positive net present value (NPV), then the profitability index is:

Enhancement occurs when a project robs cash flow from the firm's existing line of business.

A firm is evaluating a proposal which has an initial investment of $50,000 and has cash flows of $15,000 per year for five years. The payback of the project is:

The selection stage involves applying the appropriate capital budgeting techniques to help make a final decision.

Expansion projects involving new areas and product lines are usually associated with greater cash inflow uncertainty.

MIRR rankings of mutually exclusive projects with comparably sized initial investments will agree with the NPV rankings of those projects.

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Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuations

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

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Exam 17: Capital Budgeting Analysis

The development stage requires estimating relevant cash inflows and outflows.

In Excel, you find the IRR using the net present value function with a discount rate of zero.

Excel calculates NPV exactly the same way as it is calculated in the textbook.

A firm's cost of capital is the discount rate used in the evaluation of capital budgeting projects using payback and IRR.

The development stage involves discussing the pros and cons of each project.

The majority of capital budgeting projects are short-lived projects.

The stage in the capital budgeting process that requires estimating relevant cash inflows and outflows and discussing the pros and cons of each project is called the _____________ stage.

The profitability index is also sometimes referred to as the benefit/cost ratio.

A firm's cost of capital is discount rate used in the evaluation of capital budgeting projects using NPV and IRR.

It is possible for a set of financial data to have more than one IRR value.

Which of the following statements is correct?

A capital budgeting project's cash flows, including the total up-front cost of the project, are typically known with certainty before the project starts.

Whenever the net present value of a project is positive, the profitability index is greater or equal to 1.0.

Which of the following is true of sunk costs?

If a project has a positive net present value (NPV), then the profitability index is:

Enhancement occurs when a project robs cash flow from the firm's existing line of business.

A firm is evaluating a proposal which has an initial investment of $50,000 and has cash flows of $15,000 per year for five years. The payback of the project is:

The selection stage involves applying the appropriate capital budgeting techniques to help make a final decision.

Expansion projects involving new areas and product lines are usually associated with greater cash inflow uncertainty.

MIRR rankings of mutually exclusive projects with comparably sized initial investments will agree with the NPV rankings of those projects.

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuations

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Structure and the Cost of Capital

Filters