Question 1

All of the following statements are correct except:

Accepted Answer

A) Capital budgeting is the process of identifying,evaluating,and implementing a firm's investment opportunities. 
B) Capital budgeting seeks to identify projects that will enhance a firm's competitive advantage and by so doing increase shareholders' wealth. 
C) By its nature,capital budgeting involves long-term projects,although capital budgeting techniques also can be applied to working capital decisions 
D) Capital budgeting projects usually require small initial investments and may involve acquiring or constructing plant and equipment. 
E) all of the above statements are correct 
A) Capital budgeting is the process of identifying,evaluating,and implementing a firm's investment opportunities. 
B) Capital budgeting seeks to identify projects that will enhance a firm's competitive advantage and by so doing increase shareholders' wealth. 
C) By its nature,capital budgeting involves long-term projects,although capital budgeting techniques also can be applied to working capital decisions 
D) Capital budgeting projects usually require small initial investments and may involve acquiring or constructing plant and equipment. 
E) all of the above statements are correct

Question 2

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 3

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

Accepted Answer

A) market imperfections or inefficiencies such as a monopoly situation. 
B) economies of scale. 
C) product differentiation. 
D) government policy. 
E) all of the above statements are correct 
A) market imperfections or inefficiencies such as a monopoly situation. 
B) economies of scale. 
C) product differentiation. 
D) government policy. 
E) all of the above statements are correct

Question 4

What is the NPV for the following project if its cost of capital is 12% and 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,$1,900,000 in year 2,$1,700,000 in year 3,and ($1,300,000)in year 4?

Accepted Answer

A) ($1,494,336) 
B) $1,494,336 
C) greater than zero 
D) two of the above 
A) ($1,494,336) 
B) $1,494,336 
C) greater than zero 
D) two of the above

Question 5

The stand-alone principle means that:

Accepted Answer

A) projects should not be evaluated against one another 
B) projects must operate independently of the firm's other projects 
C) analysts should focus on the project's cash flows,uncontaminated by cash flows from the firm's other activities 
D) none of the above 
A) projects should not be evaluated against one another 
B) projects must operate independently of the firm's other projects 
C) analysts should focus on the project's cash flows,uncontaminated by cash flows from the firm's other activities 
D) none of the above

Question 6

The net present value of an investment is the present value of a project's future cash inflows minus its initial cost.

Accepted Answer

A) True 
 B)False

Question 7

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.If the firm's required return or cost of capital is 15%,should it accept the project using the IRR as a decision criteria?

Accepted Answer

A) yes 
B) no 
C) can't tell 
D) none of the above 
A) yes 
B) no 
C) can't tell 
D) none of the above

Question 8

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 never 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 never a conflict between NPV and IRR in the case of mutually exclusive projects. 
E) all of the above are correct

Question 9

A higher-risk project needs to be evaluated using a lower required rate of return.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Which of the following statements is correct?

Accepted Answer

A) The typical capital budgeting project involves a small upfront cash outlay,followed by a series of smaller cash inflows and outflows,but the project's cash flows,including the total upfront cost of the project,are not known with certainty before the project starts. 
B) The typical capital budgeting project involves a large upfront cash outlay,followed by a series of larger cash inflows and outflows,but the project's cash flows,including the total upfront cost of the project,are not known with certainty before the project starts. 
C) The typical capital budgeting project involves a large upfront cash outlay,followed by a series of smaller cash inflows and outflows,but the project's cash flows,including the total upfront cost of the project,are not known with certainty before the project starts. 
D) The typical capital budgeting project involves a large upfront cash outlay,followed by a series of smaller cash inflows and outflows,and the project's cash flows,including the total upfront cost of the project,are known with certainty before the project starts. 
E) none of the above statements are correct 
A) The typical capital budgeting project involves a small upfront cash outlay,followed by a series of smaller cash inflows and outflows,but the project's cash flows,including the total upfront cost of the project,are not known with certainty before the project starts. 
B) The typical capital budgeting project involves a large upfront cash outlay,followed by a series of larger cash inflows and outflows,but the project's cash flows,including the total upfront cost of the project,are not known with certainty before the project starts. 
C) The typical capital budgeting project involves a large upfront cash outlay,followed by a series of smaller cash inflows and outflows,but the project's cash flows,including the total upfront cost of the project,are not known with certainty before the project starts. 
D) The typical capital budgeting project involves a large upfront cash outlay,followed by a series of smaller cash inflows and outflows,and the project's cash flows,including the total upfront cost of the project,are known with certainty before the project starts. 
E) none of the above statements are correct

Question 12

The ________ is the discount rate that equates the present value of the cash inflows with the initial investment.

Accepted Answer

A) payback period 
B) average rate of return 
C) cost of capital 
D) internal rate of return 
A) payback period 
B) average rate of return 
C) cost of capital 
D) internal rate of return

Question 13

When considering the time value of money,which of the following four methods of project evaluation would appear to be the least satisfactory?

Accepted Answer

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

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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) MOGS. 
B) SMOG. 
C) OMGS. 
D) GOMS. 
E) none of the above statements are correct 
A) MOGS. 
B) SMOG. 
C) OMGS. 
D) GOMS. 
E) none of the above statements are correct

Question 16

As a rule,independent projects are accepted if the internal rate of return is greater than or equal to:

Accepted Answer

A) 1.0 
B) zero 
C) marginal cost of capital 
D) expected rate of return 
A) 1.0 
B) zero 
C) marginal cost of capital 
D) expected rate of return

Question 17

The depreciation tax shield equals the amount of the depreciation expense multiplied by the firm's tax rate.

Accepted Answer

A) True 
 B)False

Question 18

Payback explicitly considers the time value of money.

Accepted Answer

A) True 
 B)False

Question 19

In the case of independent 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. 
E) none of the above statements are correct 
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. 
E) none of the above statements are correct

Question 20

Which of the following statements is correct?

Accepted Answer

A) Capital budgeting is the process of identifying,evaluating,and implementing a firm's investment opportunities. 
B) Capital budgeting seeks to identify projects that will reduce a firm's competitive advantage and by so doing decrease shareholders' wealth. 
C) By its nature,capital budgeting involves short-term projects. 
D) Capital budgeting projects usually require small initial investments and may involve acquiring or constructing plant and equipment. 
E) none of the above statements are correct 
A) Capital budgeting is the process of identifying,evaluating,and implementing a firm's investment opportunities. 
B) Capital budgeting seeks to identify projects that will reduce a firm's competitive advantage and by so doing decrease shareholders' wealth. 
C) By its nature,capital budgeting involves short-term projects. 
D) Capital budgeting projects usually require small initial investments and may involve acquiring or constructing plant and equipment. 
E) none of the above statements are correct

All of the following statements are correct except:

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

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

What is the NPV for the following project if its cost of capital is 12% and 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,$1,900,000 in year 2,$1,700,000 in year 3,and ($1,300,000)in year 4?

The stand-alone principle means that:

The net present value of an investment is the present value of a project's future cash inflows minus its initial cost.

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.If the firm's required return or cost of capital is 15%,should it accept the project using the IRR as a decision criteria?

All of the following statements are correct except:

A higher-risk project needs to be evaluated using a lower required rate of return.

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

Which of the following statements is correct?

The ________ is the discount rate that equates the present value of the cash inflows with the initial investment.

When considering the time value of money,which of the following four methods of project evaluation would appear to be the least satisfactory?

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

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

As a rule,independent projects are accepted if the internal rate of return is greater than or equal to:

The depreciation tax shield equals the amount of the depreciation expense multiplied by the firm's tax rate.

Payback explicitly considers the time value of money.

In the case of independent projects:

Which of the following statements is correct?

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

All of the following statements are correct except:

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

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

What is the NPV for the following project if its cost of capital is 12% and 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,$1,900,000 in year 2,$1,700,000 in year 3,and ($1,300,000)in year 4?

The stand-alone principle means that:

The net present value of an investment is the present value of a project's future cash inflows minus its initial cost.

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.If the firm's required return or cost of capital is 15%,should it accept the project using the IRR as a decision criteria?

All of the following statements are correct except:

A higher-risk project needs to be evaluated using a lower required rate of return.

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

Which of the following statements is correct?

The ________ is the discount rate that equates the present value of the cash inflows with the initial investment.

When considering the time value of money,which of the following four methods of project evaluation would appear to be the least satisfactory?

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

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

As a rule,independent projects are accepted if the internal rate of return is greater than or equal to:

The depreciation tax shield equals the amount of the depreciation expense multiplied by the firm's tax rate.

Payback explicitly considers the time value of money.

In the case of independent projects:

Which of the following statements is correct?

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