Exam 9: Capital Budgeting Techniques

Project A has a pattern of large cash inflows in the early years of its life, whereas Project B generates a majority of its cash inflows in the later years of its life. Currently, both projects have the same net present value (NPV). If the firm's required rate of return increases, other things held constant, Project B will be more preferable than Project A after the rate change. 

Modified internal rate of return (MIRR) is the discount rate that forces the present value of a project's terminal value to equal the _____. 

For a particular project, other things held constant, an increase in the firm's required rate of return will result in _____. 

Effective capital budgeting can improve the timing of asset acquisition and the quality of assets purchased. By forecasting the needs for capital assets in advance, a firm will have an opportunity to purchase and install assets before they are needed. 

If a capital budgeting project has a negative net present value (NPV),

The post-audit is a simple process in which actual results of capital budgeting analyses are compared with forecasted results and only discrepancies that result from factors that are completely under management's control are evaluated further. 

Which of the following capital budgeting techniques makes the assumption that the project's cash flows are reinvested at the firms required rate of return?

In capital budgeting analyses, the primary difference between the traditional payback period (PB) technique and the discounted payback period (DPB) technique is that the DPB:

Which of the following statements is correct?

The present value of the expected net cash flows of all the projects undertaken by a firm will most likely exceed the present value of the firm's expected net profit after tax, because:

Which of the following is a correct statement about the traditional payback period (PB) method that is used to evaluate capital budgeting projects?

A project's terminal value is the _____. 

Which of the following statements best describes the post-audit function in the capital budgeting process?

Seattle Corporation identifies an investment opportunity that will yield end of year cash flows of $30,000 in both Year 1 and Year 2, $35,000 in both Year 3 and Year 4, and $40,000 in Year 5. The investment will cost the firm $100,000 today, and the firm's required rate of return is 10 percent. What is the net present value (NPV) for this investment?

A project should be accepted if _____. 

Suppose a firm has evaluated four capital budgeting projects and, using one of the time value of money capital budgeting techniques, has determined that all of the projects are acceptable. If the projects are mutually exclusive, which of the following capital budgeting techniques should be used to make the purchasing decision to ensure the firm's value is maximized?

Which of the following statements is correct?

If the traditional payback period method is used to evaluate a capital budgeting project, the project is considered acceptable if _____. 

The main reason that the net present value (NPV) method is regarded as being conceptually superior to the internal rate of return (IRR) method for the purpose of evaluating mutually exclusive investments, is that mutually exclusive projects have multiple internal rates of return (IRRs). 

If a capital budgeting project is purchased, a firm's value, and thus its stockholders' wealth, will change by the amount of the project's _____.