Question 1

Projects favored using payback techniques will be ranked the same using net present value.

Accepted Answer

A) True 
 B)False

Question 2

The NPV, IRR, and PI always agree on which projects would enhance shareholder wealth and which would diminish it.

Accepted Answer

A) True 
 B)False

Question 3

In Excel, you find the IRR using the "=IRR()" function.

Accepted Answer

A) True 
 B)False

Question 4

In the case of mutually exclusive projects:

Accepted Answer

A)  the financial manager is responsible for choosing the average of these alternatives since only one can be chosen; selecting one project requires the selection of the other. 
B)  they are to be evaluated based on their expected effect on shareholder wealth; all such projects that enhance shareholder wealth should be included in the firm's capital budget. 
C)  the financial manager is responsible for choosing the best of these alternatives since only one can be chosen; selecting one project precludes the other from being undertaken. 
D)  they are to be evaluated based on their past effect on shareholder wealth; all such projects that enhance shareholder wealth should be included in the firm's capital budget. 
A)  the financial manager is responsible for choosing the average of these alternatives since only one can be chosen; selecting one project requires the selection of the other. 
B)  they are to be evaluated based on their expected effect on shareholder wealth; all such projects that enhance shareholder wealth should be included in the firm's capital budget. 
C)  the financial manager is responsible for choosing the best of these alternatives since only one can be chosen; selecting one project precludes the other from being undertaken. 
D)  they are to be evaluated based on their past effect on shareholder wealth; all such projects that enhance shareholder wealth should be included in the firm's capital budget.

Question 5

What is the IRR for the following project if its initial after-tax cost is $5,000,000 and it is expected to provide after-tax operating cash flows of ($1,800,000) in year 1, $2,900,000 in year 2, $2,700,000 in year 3, and $2,300,000 in year 4?

Accepted Answer

A)  5.83% 
B)  9.67% 
C)  11.44% 
D)  13.74% 
A)  5.83% 
B)  9.67% 
C)  11.44% 
D)  13.74%

Question 6

The process of identifying, evaluating, and implementing a firm's investment opportunities is referred to as:

Accepted Answer

A)  capital expenditures 
B)  initial cash flow analysis 
C)  long-term forecasting 
D)  capital budgeting 
A)  capital expenditures 
B)  initial cash flow analysis 
C)  long-term forecasting 
D)  capital budgeting

Question 7

Capital budgeting is the process of identifying, evaluating, and implementing a firm's investment opportunities.

Accepted Answer

A) True 
 B)False

Question 8

Projects with smaller initial investments may have higher PIs and IRRs, but their small size may appear to make them less attractive from an NPV perspective.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is the best expression of the net present value (NPV) acceptance criterion?

Accepted Answer

A)  positive cash flows total greater than negative flows 
B)  number of positive cash flows exceeds negative 
C)  payback within one third the life of the project 
D)  NPV is greater than or equal to zero 
A)  positive cash flows total greater than negative flows 
B)  number of positive cash flows exceeds negative 
C)  payback within one third the life of the project 
D)  NPV is greater than or equal to zero

Question 10

An examples of external economic data required for project analysis includes which of the following?

Accepted Answer

A)  business cycle stages 
B)  labor-management relations 
C)  ethnic background of workers 
D)  changes in weather patterns - such as global warming 
A)  business cycle stages 
B)  labor-management relations 
C)  ethnic background of workers 
D)  changes in weather patterns - such as global warming

Question 11

Of the four options listed below and encountered in project evaluation, which one is likely to make a project seem less attractive?

Accepted Answer

A)  underestimating negative cash flows 
B)  overestimating positive cash flows 
C)  using a higher cost of capital 
D)  ignoring the time value of money 
A)  underestimating negative cash flows 
B)  overestimating positive cash flows 
C)  using a higher cost of capital 
D)  ignoring the time value of money

Question 12

Which one of the following capital-budgeting evaluation techniques is based on finding a discount rate which causes the net present value to be zero?

Accepted Answer

A)  net present value 
B)  internal rate of return 
C)  profitability index 
D)  payback 
A)  net present value 
B)  internal rate of return 
C)  profitability index 
D)  payback

Question 13

The identification stage requires estimating relevant cash inflows and outflows.

Accepted Answer

A) True 
 B)False

Question 14

The relevant cash flows of a project do not include which one of the following?

Accepted Answer

A)  incremental after-tax cash flows 
B)  cannibalization effects 
C)  opportunity costs 
D)  sunk costs 
A)  incremental after-tax cash flows 
B)  cannibalization effects 
C)  opportunity costs 
D)  sunk costs

Question 15

All of the following statements are correct except:

Accepted Answer

A)  Capital budgeting analysis is a framework for evaluating all business decisions; it is the only a tool for the "financial" types. 
B)  Proper analysis will identify relevant cash flows and an appropriate discount rate to reflect the risk of the strategy and will compare the benefits and costs of the project by considering the time value of money. 
C)  Whether the investment is one in a business strategy, building a new warehouse, seeking fuel efficient methods of doing business, upgrading information technology systems, or investing in human resources, we should try to quantify the benefits and cost of these choices in order to evaluate them properly. 
D)  To achieve success over time, a firm's managers must identify and invest in projects that provide positive net present values to maximize shareholder wealth. 
A)  Capital budgeting analysis is a framework for evaluating all business decisions; it is the only a tool for the "financial" types. 
B)  Proper analysis will identify relevant cash flows and an appropriate discount rate to reflect the risk of the strategy and will compare the benefits and costs of the project by considering the time value of money. 
C)  Whether the investment is one in a business strategy, building a new warehouse, seeking fuel efficient methods of doing business, upgrading information technology systems, or investing in human resources, we should try to quantify the benefits and cost of these choices in order to evaluate them properly. 
D)  To achieve success over time, a firm's managers must identify and invest in projects that provide positive net present values to maximize shareholder wealth.

Question 16

Payback explicitly considers the time value of money.

Accepted Answer

A) True 
 B)False

Question 17

Any positive economic profit or positive net present value may arise from all of the following, except:

Accepted Answer

A)  market imperfections or inefficiencies such as a monopoly situation. 
B)  economies of scale. 
C)  product development. 
D)  government policy. 
A)  market imperfections or inefficiencies such as a monopoly situation. 
B)  economies of scale. 
C)  product development. 
D)  government policy.

Question 18

Which of the following features is characteristic of a payback period?

Accepted Answer

A)  uses discounting 
B)  ignores cash flows beyond the payback period 
C)  equivalent to net present value 
D)  considers time value of money 
A)  uses discounting 
B)  ignores cash flows beyond the payback period 
C)  equivalent to net present value 
D)  considers time value of money

Question 19

The development stage requires asking what the strategic impact will be of not doing the project.

Accepted Answer

A) True 
 B)False

Question 20

The net present value, internal rate of return and payback period methods always agree on which project would enhance shareholder wealth and which would diminish it.

Accepted Answer

A) True 
 B)False

Projects favored using payback techniques will be ranked the same using net present value.

The NPV, IRR, and PI always agree on which projects would enhance shareholder wealth and which would diminish it.

In Excel, you find the IRR using the "=IRR()" function.

In the case of mutually exclusive projects:

What is the IRR for the following project if its initial after-tax cost is $5,000,000 and it is expected to provide after-tax operating cash flows of ($1,800,000) in year 1, $2,900,000 in year 2, $2,700,000 in year 3, and $2,300,000 in year 4?

The process of identifying, evaluating, and implementing a firm's investment opportunities is referred to as:

Capital budgeting is the process of identifying, evaluating, and implementing a firm's investment opportunities.

Projects with smaller initial investments may have higher PIs and IRRs, but their small size may appear to make them less attractive from an NPV perspective.

Which of the following is the best expression of the net present value (NPV) acceptance criterion?

An examples of external economic data required for project analysis includes which of the following?

Of the four options listed below and encountered in project evaluation, which one is likely to make a project seem less attractive?

Which one of the following capital-budgeting evaluation techniques is based on finding a discount rate which causes the net present value to be zero?

The identification stage requires estimating relevant cash inflows and outflows.

The relevant cash flows of a project do not include which one of the following?

All of the following statements are correct except:

Payback explicitly considers the time value of money.

Any positive economic profit or positive net present value may arise from all of the following, except:

Which of the following features is characteristic of a payback period?

The development stage requires asking what the strategic impact will be of not doing the project.

The net present value, internal rate of return and payback period methods always agree on which project would enhance shareholder wealth and which would diminish it.

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

Exam 17: Capital Budgeting Analysis

Projects favored using payback techniques will be ranked the same using net present value.

The NPV, IRR, and PI always agree on which projects would enhance shareholder wealth and which would diminish it.

In Excel, you find the IRR using the "=IRR()" function.

In the case of mutually exclusive projects:

What is the IRR for the following project if its initial after-tax cost is $5,000,000 and it is expected to provide after-tax operating cash flows of ($1,800,000) in year 1, $2,900,000 in year 2, $2,700,000 in year 3, and $2,300,000 in year 4?

The process of identifying, evaluating, and implementing a firm's investment opportunities is referred to as:

Capital budgeting is the process of identifying, evaluating, and implementing a firm's investment opportunities.

Projects with smaller initial investments may have higher PIs and IRRs, but their small size may appear to make them less attractive from an NPV perspective.

Which of the following is the best expression of the net present value (NPV) acceptance criterion?

An examples of external economic data required for project analysis includes which of the following?

Of the four options listed below and encountered in project evaluation, which one is likely to make a project seem less attractive?

Which one of the following capital-budgeting evaluation techniques is based on finding a discount rate which causes the net present value to be zero?

The identification stage requires estimating relevant cash inflows and outflows.

The relevant cash flows of a project do not include which one of the following?

All of the following statements are correct except:

Payback explicitly considers the time value of money.

Any positive economic profit or positive net present value may arise from all of the following, except:

Which of the following features is characteristic of a payback period?

The development stage requires asking what the strategic impact will be of not doing the project.

The net present value, internal rate of return and payback period methods always agree on which project would enhance shareholder wealth and which would diminish it.

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