Question 1

Any positive economic profit or positive net present value must arise from

Accepted Answer

A) market imperfections or inefficiencies such as a monopoly situation. 
B) cost-saving projects that allow the firm to reduce costs below the current level such as economies of scale and access to distribution channels. 
C) government contracts or preferences. 
D) two of the above are correct. 
E) all of the above statements are correct 
A) market imperfections or inefficiencies such as a monopoly situation. 
B) cost-saving projects that allow the firm to reduce costs below the current level such as economies of scale and access to distribution channels. 
C) government contracts or preferences. 
D) two of the above are correct. 
E) all of the above statements are correct

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Which one of the following best explains the impact on a firm that accepts a project with a negative NPV?

Accepted Answer

A) negative cash flows 
B) decrease in the value of the firm 
C) high marginal cost of capital 
D) low initial returns 
A) negative cash flows 
B) decrease in the value of the firm 
C) high marginal cost of capital 
D) low initial returns

Question 4

Estimates of revenues and costs should take the business unit view,rather than the corporate view.

Accepted Answer

A) True 
 B)False

Question 5

Positive NPV projects may originate from cost saving projects such as those that

Accepted Answer

A) reduce economies of scale. 
B) create product differentiation. 
C) reduce absolute cost advantages. 
D) fail to exploit advantages in distribution channels. 
E) none of the above statements are correct 
A) reduce economies of scale. 
B) create product differentiation. 
C) reduce absolute cost advantages. 
D) fail to exploit advantages in distribution channels. 
E) none of the above statements are correct

Question 6

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 7

a sunk cost is a project-related expense that is dependent upon whether or not the project is undertaken.

Accepted Answer

A) True 
 B)False

Question 8

When applied to the analysis of independent projects,NPV and IRR never provide conflicting results.

Accepted Answer

A) True 
 B)False

Question 9

The process of allocating funds among competing 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 10

The stand alone principle suggests that a project must be viewed separately from the rest of the firm.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

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

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

The stand-alone principle focuses on the project's own cash flows,uncontaminated by cash flows from the firm's other activities.

Accepted Answer

A) True 
 B)False

Question 15

Capital budgeting decisions can only involve mutually exclusive projects.

Accepted Answer

A) True 
 B)False

Question 16

Of the four options listed below and encountered in project evaluation,which one is most 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 17

The method that calculates the ratio of the present value of the positive cash flows of a project to the absolute value of the present value of the negative cash flows is called the:

Accepted Answer

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

Question 18

Sunk costs are relevant in capital budgeting analysis and should be considered in calculating a project's initial investment.

Accepted Answer

A) True 
 B)False

Question 19

Mutually exclusive projects are projects that are not in direct competition with one another.

Accepted Answer

A) True 
 B)False

Question 20

The internal rate of return concept is best explained by which of the following?

Accepted Answer

A) rate where NPV is equal to zero 
B) point where initial investment has been returned 
C) marginal cost of capital 
D) average book value 
A) rate where NPV is equal to zero 
B) point where initial investment has been returned 
C) marginal cost of capital 
D) average book value

Any positive economic profit or positive net present value must arise from

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

Which one of the following best explains the impact on a firm that accepts a project with a negative NPV?

Estimates of revenues and costs should take the business unit view,rather than the corporate view.

Positive NPV projects may originate from cost saving projects such as those that

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?

a sunk cost is a project-related expense that is dependent upon whether or not the project is undertaken.

When applied to the analysis of independent projects,NPV and IRR never provide conflicting results.

The process of allocating funds among competing investment opportunities is referred to as:

The stand alone principle suggests that a project must be viewed separately from the rest of the firm.

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 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.

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

The stand-alone principle focuses on the project's own cash flows,uncontaminated by cash flows from the firm's other activities.

Capital budgeting decisions can only involve mutually exclusive projects.

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

The method that calculates the ratio of the present value of the positive cash flows of a project to the absolute value of the present value of the negative cash flows is called the:

Sunk costs are relevant in capital budgeting analysis and should be considered in calculating a project's initial investment.

Mutually exclusive projects are projects that are not in direct competition with one another.

The internal rate of return concept is best explained by which of the following?

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

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Exam 17: Capital Budgeting Analysis

Any positive economic profit or positive net present value must arise from

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

Which one of the following best explains the impact on a firm that accepts a project with a negative NPV?

Estimates of revenues and costs should take the business unit view,rather than the corporate view.

Positive NPV projects may originate from cost saving projects such as those that

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?

a sunk cost is a project-related expense that is dependent upon whether or not the project is undertaken.

When applied to the analysis of independent projects,NPV and IRR never provide conflicting results.

The process of allocating funds among competing investment opportunities is referred to as:

The stand alone principle suggests that a project must be viewed separately from the rest of the firm.

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 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.

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

The stand-alone principle focuses on the project's own cash flows,uncontaminated by cash flows from the firm's other activities.

Capital budgeting decisions can only involve mutually exclusive projects.

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

The method that calculates the ratio of the present value of the positive cash flows of a project to the absolute value of the present value of the negative cash flows is called the:

Sunk costs are relevant in capital budgeting analysis and should be considered in calculating a project's initial investment.

Mutually exclusive projects are projects that are not in direct competition with one another.

The internal rate of return concept is best explained by which of the following?

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