Question 1

A NPV profile shows how NPV varies given alternative IRRs.

Accepted Answer

A) True 
 B)False

Question 2

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

Question 3

A capital budgeting project's cash flows,including the total up-front cost of the project,are typically known with certainty before the project starts.

Accepted Answer

A) True 
 B)False

Question 4

The profitability index is also sometimes referred to as the benefit/cost ratio.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is false?

Accepted Answer

A) If the payback period is greater than the maximum acceptable payback period,accept the project. 
B) If the payback period is less than the maximum acceptable payback period,reject the project. 
C) If the payback period is greater than the maximum acceptable payback period,reject the project. 
D) two of the above are false. 
A) If the payback period is greater than the maximum acceptable payback period,accept the project. 
B) If the payback period is less than the maximum acceptable payback period,reject the project. 
C) If the payback period is greater than the maximum acceptable payback period,reject the project. 
D) two of the above are false.

Question 6

All of the following statements are correct except:

Accepted Answer

A) MIRR solves all of the problems presented by IRR and will always provide the same recommendation as the NPV. 
B) MIRR never gives a single answer-it will always provide multiple answers unlike the IRR approach. 
C) MIRR is least 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) none of the above are correct 
A) MIRR solves all of the problems presented by IRR and will always provide the same recommendation as the NPV. 
B) MIRR never gives a single answer-it will always provide multiple answers unlike the IRR approach. 
C) MIRR is least 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) none of the above are correct

Question 7

Incremental cash flows represents a project's cash flows summed together with the firm's other cash flows to get a total firm view of the project.

Accepted Answer

A) True 
 B)False

Question 8

Your company owns land in a busy shopping district.If the chair of the company's board of directors thinks they can build a plant on that land and that the land will incur no additional cost,the chair fails to take into account:

Accepted Answer

A) capital expenditures 
B) opportunity costs 
C) sunk costs 
D) depreciation 
A) capital expenditures 
B) opportunity costs 
C) sunk costs 
D) depreciation

Question 9

The payback period concept is best explained by which of the following?

Accepted Answer

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

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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. 
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 12

The first step in the capital budgeting process is

Accepted Answer

A) implementation 
B) selection 
C) follow-up 
D) identification 
A) implementation 
B) selection 
C) follow-up 
D) identification

Question 13

The ratio between the present value of a project's cash inflows and the present value of its initial investment is called the:

Accepted Answer

A) MIRR. 
B) IRR. 
C) PM. 
D) NPV. 
E) none of the above are correct 
A) MIRR. 
B) IRR. 
C) PM. 
D) NPV. 
E) none 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 8%.Based on this information,the NPV of the project is _________ million and the firm should _________ the project.

Accepted Answer

A) $3.7;accept 
B) -$3.7,reject 
C) $159.37,accept 
D) -$159.37,reject 
E) none of the above 
A) $3.7;accept 
B) -$3.7,reject 
C) $159.37,accept 
D) -$159.37,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) refurbishing. 
D) development. 
E) all of the above are included 
A) follow-up. 
B) selection. 
C) refurbishing. 
D) development. 
E) all of the above are included

Question 16

Examples of internal financial data required for project analysis include all of the following except:

Accepted Answer

A) investment costs 
B) business cycle stages 
C) financing costs 
D) transportation costs 
E) all of the above are included 
A) investment costs 
B) business cycle stages 
C) financing costs 
D) transportation costs 
E) all of the above are included

Question 17

All of the following statements are correct except:

Accepted Answer

A) The NPV and IRR methods will only sometimes agree on whether a project enhances or harms shareholder wealth. 
B) If a project has a positive NPV,its IRR will always be less than the cost of capital. 
C) If a project has a negative NPV,its IRR will always be greater than the cost of capital. 
D) There is always a conflict between NPV and IRR in the case of mutually exclusive projects. 
E) none of the above are correct 
A) The NPV and IRR methods will only sometimes agree on whether a project enhances or harms shareholder wealth. 
B) If a project has a positive NPV,its IRR will always be less than the cost of capital. 
C) If a project has a negative NPV,its IRR will always be greater than the cost of capital. 
D) There is always a conflict between NPV and IRR in the case of mutually exclusive projects. 
E) none of the above are correct

Question 18

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.The payback of the project is:

Accepted Answer

A) 1.5 years 
B) 2 years 
C) 3.3 years 
D) 4 years 
E) none of the above 
A) 1.5 years 
B) 2 years 
C) 3.3 years 
D) 4 years 
E) none of the above

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

When the net present value is negative,the internal rate of return is __________ the cost of capital.

Accepted Answer

A) greater than 
B) greater than or equal to 
C) less than 
D) equal to 
E) none of the above 
A) greater than 
B) greater than or equal to 
C) less than 
D) equal to 
E) none of the above

A NPV profile shows how NPV varies given alternative IRRs.

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

A capital budgeting project's cash flows,including the total up-front cost of the project,are typically known with certainty before the project starts.

The profitability index is also sometimes referred to as the benefit/cost ratio.

Which of the following statements is false?

All of the following statements are correct except:

Incremental cash flows represents a project's cash flows summed together with the firm's other cash flows to get a total firm view of the project.

Your company owns land in a busy shopping district.If the chair of the company's board of directors thinks they can build a plant on that land and that the land will incur no additional cost,the chair fails to take into account:

The payback period concept is best explained by which of the following?

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

In the case of mutually exclusive projects:

The first step in the capital budgeting process is

The ratio between the present value of a project's cash inflows and the present value of its initial investment is called the:

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

Examples of internal financial data required for project analysis include all of the following except:

All of the following statements are correct except:

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.The payback of the project is:

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

When the net present value is negative,the internal rate of return is __________ the cost of capital.

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

A NPV profile shows how NPV varies given alternative IRRs.

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

A capital budgeting project's cash flows,including the total up-front cost of the project,are typically known with certainty before the project starts.

The profitability index is also sometimes referred to as the benefit/cost ratio.

Which of the following statements is false?

All of the following statements are correct except:

Incremental cash flows represents a project's cash flows summed together with the firm's other cash flows to get a total firm view of the project.

Your company owns land in a busy shopping district.If the chair of the company's board of directors thinks they can build a plant on that land and that the land will incur no additional cost,the chair fails to take into account:

The payback period concept is best explained by which of the following?

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

In the case of mutually exclusive projects:

The first step in the capital budgeting process is

The ratio between the present value of a project's cash inflows and the present value of its initial investment is called the:

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

Examples of internal financial data required for project analysis include all of the following except:

All of the following statements are correct except:

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.The payback of the project is:

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

When the net present value is negative,the internal rate of return is __________ the cost of capital.

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