Question 1

The profitability index is the ratio of the to the .

Accepted Answer

A) net present value, net investment 
B) net investment, net present value 
C) present value of future net cash flows, net investment 
D) net investment, present value of future net cash flows 
A) net present value, net investment 
B) net investment, net present value 
C) present value of future net cash flows, net investment 
D) net investment, present value of future net cash flows

Question 2

When two or more normal projects are under consideration, the profitability index, the net present value, and the internal rate of return methods will yield identical accept/reject signals.

Accepted Answer

A) coincident 
B) mutually exclusive 
C) independent 
D) none of these 
A) coincident 
B) mutually exclusive 
C) independent 
D) none of these

Question 3

There are many reasons why a firm can earn above-normal profits.These reasons include all of the following except:

Accepted Answer

A) access to superior labor or managerial talents 
B) superior access to financial resources at lower costs 
C) patent control of superior product designs 
D) ability of new firms to acquire necessary factors of production 
A) access to superior labor or managerial talents 
B) superior access to financial resources at lower costs 
C) patent control of superior product designs 
D) ability of new firms to acquire necessary factors of production

Question 4

The choice to accept or reject projects based on the payback period is:

Accepted Answer

A) an objective decision. 
B) as subjective decision. 
C) will always give the same results as using the net present value method. 
D) will always give the same results as using the internal rate of return method. 
A) an objective decision. 
B) as subjective decision. 
C) will always give the same results as using the net present value method. 
D) will always give the same results as using the internal rate of return method.

Question 5

Generally, the is considered to be a more realistic reinvestment rate than the .

Accepted Answer

A) risk-free rate, internal rate of return 
B) internal rate of return, cost of capital 
C) cost of capital, internal rate of return 
D) risk-free rate, cost of capital 
A) risk-free rate, internal rate of return 
B) internal rate of return, cost of capital 
C) cost of capital, internal rate of return 
D) risk-free rate, cost of capital

Question 6

The net present value method assumes that cash flows are reinvested at the , whereas the internal rate of return method assumes that cash flows are reinvested at the .

Accepted Answer

A) discount rate, required rate of return 
B) cost of capital, market rate of return 
C) firm's cost of capital, computed internal rate of return 
D) marginal cost of capital, discount rate 
A) discount rate, required rate of return 
B) cost of capital, market rate of return 
C) firm's cost of capital, computed internal rate of return 
D) marginal cost of capital, discount rate

Question 7

Road Hawk Inc.is adding a new production line that will cost $720,000.The line will be depreciated on a straight- line basis over a 7-year period and will generate net cash flows of $160,000 in each of the 7 years.At the end of the project, it is expected the line can be sold as scrap for $10,000.If the firm's marginal tax rate is 40% and its required rate of return is 14 percent, what is the net present value of this project?

Accepted Answer

A) $70,091 
B) -$27,920 
C) $64,091 
D) -$31,520 
A) $70,091 
B) -$27,920 
C) $64,091 
D) -$31,520

The profitability index is the ratio of the to the .

When two or more normal projects are under consideration, the profitability index, the net present value, and the internal rate of return methods will yield identical accept/reject signals.

There are many reasons why a firm can earn above-normal profits.These reasons include all of the following except:

The choice to accept or reject projects based on the payback period is:

Generally, the is considered to be a more realistic reinvestment rate than the .

The net present value method assumes that cash flows are reinvested at the , whereas the internal rate of return method assumes that cash flows are reinvested at the .

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

A: The Time Value of Money

Fixed-Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

A: Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital, Capital Structure, and Dividend Policy

Capital Structure Concepts

Capital Structure Management in Practice

A: Capital Structure Management in Practice

Dividend Policy

Working Capital Management

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate-Term Financing

Financing with Derivatives

A: Financing with Derivatives

Risk Management

International Financial Management

Corporate Restructuring

Filters

Exam 10: Capital Budgeting: Decision Criteria and Real Option Considerations

The profitability index is the ratio of the to the .

When two or more normal projects are under consideration, the profitability index, the net present value, and the internal rate of return methods will yield identical accept/reject signals.

There are many reasons why a firm can earn above-normal profits.These reasons include all of the following except:

The choice to accept or reject projects based on the payback period is:

Generally, the is considered to be a more realistic reinvestment rate than the .

The net present value method assumes that cash flows are reinvested at the , whereas the internal rate of return method assumes that cash flows are reinvested at the .

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

A: The Time Value of Money

Fixed-Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

A: Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital, Capital Structure, and Dividend Policy

Capital Structure Concepts

Capital Structure Management in Practice

A: Capital Structure Management in Practice

Dividend Policy

Working Capital Management

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate-Term Financing

Financing with Derivatives

A: Financing with Derivatives

Risk Management

International Financial Management

Corporate Restructuring

Filters