Question 1

Information generation develops three types of data: internal financial data,external economic and political data,and non-financial data.

Accepted Answer

A) True 
 B)False

Question 2

When a project's net present value exceeds zero,then:

Accepted Answer

A) the project should be accepted 
B) the project will be acceptable using the payback period method 
C) the IRR should be calculated to ensure that the project's IRR exceeds the cost of capital 
D) both a and c are true 
A) the project should be accepted 
B) the project will be acceptable using the payback period method 
C) the IRR should be calculated to ensure that the project's IRR exceeds the cost of capital 
D) both a and c are true

Question 3

The stage in the capital budgeting process in which projects that are accepted must be executed in a timely fashion is called the _____________ stage.

Accepted Answer

A) follow-up. 
B) selection. 
C) identification. 
D) implementation. 
E) none of the above are included 
A) follow-up. 
B) selection. 
C) identification. 
D) implementation. 
E) none of the above are included

Question 4

All of the following statements are correct except:

Accepted Answer

A) The NPV and IRR methods will always agree on whether a project enhances or harms shareholder wealth. 
B) If a project has a positive NPV,its IRR will always be greater 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. 
E) all of the above are correct 
A) The NPV and IRR methods will always agree on whether a project enhances or harms shareholder wealth. 
B) If a project has a positive NPV,its IRR will always be greater 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. 
E) all of the above are correct

Question 5

Which of the following statements is correct?

Accepted Answer

A) Capital budgeting analysis is not a framework for evaluating all business decisions;it is only a tool for the "financial" types. 
B) Proper analysis will identify irrelevant cash flows and an appropriate discount rate to reflect the risk of the strategy and will compare the benefits and costs of the project without 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 not 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. 
E) all of the above statements are correct 
A) Capital budgeting analysis is not a framework for evaluating all business decisions;it is only a tool for the "financial" types. 
B) Proper analysis will identify irrelevant cash flows and an appropriate discount rate to reflect the risk of the strategy and will compare the benefits and costs of the project without 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 not 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. 
E) all of the above statements are correct

Question 6

A net present value profile is a useful tool for evaluating the sensitivity of a project's NPV to changes in required return.

Accepted Answer

A) True 
 B)False

Question 7

The typical capital budgeting project involves a large up-front cash outlay,followed by a series of smaller net cash outflows.

Accepted Answer

A) True 
 B)False

Question 8

Projects with negative net present values will lead to a decrease in the value of the firm.

Accepted Answer

A) True 
 B)False

Question 9

All of the groups of cash flows from the firm's statement of cash flows are also used in the analysis of project cash flows EXCEPT:

Accepted Answer

A) cash flow from financing 
B) cash flow from investment 
C) cash flow from operations 
D) all are included 
A) cash flow from financing 
B) cash flow from investment 
C) cash flow from operations 
D) all are included

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Sound capital budgeting decisions require a variety of information including internal financial data,external economic and political data,and non-financial data.

Accepted Answer

A) True 
 B)False

Question 12

The IRR

Accepted Answer

A) shows the graphical relationship between a project's NPV and cost of capital. 
B) is the return that causes the NPV to be negative. 
C) is the return that causes the NPV to be positive. 
D) measures the firm and project's required rate of return. 
E) none of the above 
A) shows the graphical relationship between a project's NPV and cost of capital. 
B) is the return that causes the NPV to be negative. 
C) is the return that causes the NPV to be positive. 
D) measures the firm and project's required rate of return. 
E) none of the above

Question 13

All of the following statements are correct except:

Accepted Answer

A) MIRR solves some of the problems presented by IRR in that MIRR rankings of mutually exclusive projects with comparably-sized initial investments will agree with the NPV rankings of those projects. 
B) MIRR always gives a single answer-it will not give us multiple answers as the IRR approach sometimes does. 
C) MIRR is most useful in the case of mutually exclusive investments and in cases where project cash flows change sign more than once. 
D) MIRR is always greater than the regular IRR if the cost of capital is less than the regular IRR. 
E) all of the above are correct 
A) MIRR solves some of the problems presented by IRR in that MIRR rankings of mutually exclusive projects with comparably-sized initial investments will agree with the NPV rankings of those projects. 
B) MIRR always gives a single answer-it will not give us multiple answers as the IRR approach sometimes does. 
C) MIRR is most useful in the case of mutually exclusive investments and in cases where project cash flows change sign more than once. 
D) MIRR is always greater than the regular IRR if the cost of capital is less than the regular IRR. 
E) all of the above are correct

Question 14

Shanghai Shipping is considering investing in a project that requires an after-tax initial investment of 156 million and is expected to produce after-tax cash inflows of $40 million for each of the next five years.The firm's cost of capital is 10%.Based on this information,the NPV of the project is _________ million and the firm should _________ the project.

Accepted Answer

A) $151.63;accept 
B) -$151.63,reject 
C) $4.37,accept 
D) -$4.37,reject 
E) none of the above 
A) $151.63;accept 
B) -$151.63,reject 
C) $4.37,accept 
D) -$4.37,reject 
E) none of the above

Question 15

The capital budgeting process consists of all of the following stages except:

Accepted Answer

A) follow-up. 
B) selection. 
C) implementation. 
D) Development. 
E) all of the above 
A) follow-up. 
B) selection. 
C) implementation. 
D) Development. 
E) all of the above

Question 16

The identification stage in capital budgeting involves finding potential capital investment opportunities and identifying whether a project involves a replacement decision and/or revenue expansion.

Accepted Answer

A) True 
 B)False

Question 17

Opportunity costs reflect the cost of passing up the next best alternative and are irrelevant in capital budgeting analysis.

Accepted Answer

A) True 
 B)False

Question 18

The risk-adjusted discount rate (RADR)is the risk adjustment factor that represents the percent of estimated cash inflows that investors would be satisfied to receive for certain rather than the cash inflows that are possible for each year.

Accepted Answer

A) True 
 B)False

Question 19

The corporate planning tool that develops project plans that fit well with the firm's plans is often referred to by the following acronym:

Accepted Answer

A) SWOT. 
B) MOSG. 
C) STOW. 
D) GOMS. 
E) none of the above statements are correct 
A) SWOT. 
B) MOSG. 
C) STOW. 
D) GOMS. 
E) none of the above statements are correct

Question 20

Shanghai Shipping is considering investing in a project that requires an after-tax initial investment of 156 million and is expected to produce after-tax cash inflows of $40 million for each of the next five years.The firm's cost of capital is 10%.Based on this information,the IRR of the project is _________ percent and the firm should _________ the project.

Accepted Answer

A) 9.9;accept 
B) -9.9,reject 
C) 8.9,accept 
D) -8.9,reject 
E) none of the above 
A) 9.9;accept 
B) -9.9,reject 
C) 8.9,accept 
D) -8.9,reject 
E) none of the above

Information generation develops three types of data: internal financial data,external economic and political data,and non-financial data.

When a project's net present value exceeds zero,then:

The stage in the capital budgeting process in which projects that are accepted must be executed in a timely fashion is called the _____________ stage.

All of the following statements are correct except:

Which of the following statements is correct?

A net present value profile is a useful tool for evaluating the sensitivity of a project's NPV to changes in required return.

The typical capital budgeting project involves a large up-front cash outlay,followed by a series of smaller net cash outflows.

Projects with negative net present values will lead to a decrease in the value of the firm.

All of the groups of cash flows from the firm's statement of cash flows are also used in the analysis of project cash flows EXCEPT:

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

Sound capital budgeting decisions require a variety of information including internal financial data,external economic and political data,and non-financial data.

The IRR

All of the following statements are correct except:

The capital budgeting process consists of all of the following stages except:

The identification stage in capital budgeting involves finding potential capital investment opportunities and identifying whether a project involves a replacement decision and/or revenue expansion.

Opportunity costs reflect the cost of passing up the next best alternative and are irrelevant in capital budgeting analysis.

The risk-adjusted discount rate (RADR)is the risk adjustment factor that represents the percent of estimated cash inflows that investors would be satisfied to receive for certain rather than the cash inflows that are possible for each year.

The corporate planning tool that develops project plans that fit well with the firm's plans is often referred to by the following acronym:

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 Valuation

Securities 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

Information generation develops three types of data: internal financial data,external economic and political data,and non-financial data.

When a project's net present value exceeds zero,then:

The stage in the capital budgeting process in which projects that are accepted must be executed in a timely fashion is called the _____________ stage.

All of the following statements are correct except:

Which of the following statements is correct?

A net present value profile is a useful tool for evaluating the sensitivity of a project's NPV to changes in required return.

The typical capital budgeting project involves a large up-front cash outlay,followed by a series of smaller net cash outflows.

Projects with negative net present values will lead to a decrease in the value of the firm.

All of the groups of cash flows from the firm's statement of cash flows are also used in the analysis of project cash flows EXCEPT:

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

Sound capital budgeting decisions require a variety of information including internal financial data,external economic and political data,and non-financial data.

The IRR

All of the following statements are correct except:

The capital budgeting process consists of all of the following stages except:

The identification stage in capital budgeting involves finding potential capital investment opportunities and identifying whether a project involves a replacement decision and/or revenue expansion.

Opportunity costs reflect the cost of passing up the next best alternative and are irrelevant in capital budgeting analysis.

The risk-adjusted discount rate (RADR)is the risk adjustment factor that represents the percent of estimated cash inflows that investors would be satisfied to receive for certain rather than the cash inflows that are possible for each year.

The corporate planning tool that develops project plans that fit well with the firm's plans is often referred to by the following acronym:

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 Valuation

Securities 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