Question 1

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 sometimes 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 sometimes a conflict between NPV and IRR in the case of mutually exclusive projects. 
E) all of the above are correct

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

Question 3

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 4

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

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) Capital budgeting analysis is a framework for evaluating all business decisions; it is not only a tool for the "financial" types. 
B) Proper analysis will identify relevant cash flows and an appropriate discount rate to reflect the risk of the strategy and will compare the benefits and costs of the project by 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 a framework for evaluating all business decisions; it is not only a tool for the "financial" types. 
B) Proper analysis will identify relevant cash flows and an appropriate discount rate to reflect the risk of the strategy and will compare the benefits and costs of the project by 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 7

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

Question 8

Which of the following is true of sunk costs?

Accepted Answer

A) not included in initial cash flow 
B) similar to opportunity costs 
C) often combined with terminal cash flow 
D) deciding factor in most project decisions 
A) not included in initial cash flow 
B) similar to opportunity costs 
C) often combined with terminal cash flow 
D) deciding factor in most project decisions

Question 9

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 10

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 11

Payback explicitly considers the time value of money.

Accepted Answer

A) True 
 B)False

Question 12

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 13

The capital-budgeting process starts with which one of the following stages:

Accepted Answer

A) development 
B) identification 
C) implementation 
D) selection 
A) development 
B) identification 
C) implementation 
D) selection

Question 14

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 atypical 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 atypical 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 15

Examples of external economic data required for project analysis include all of the following except:

Accepted Answer

A) business cycle stages. 
B) inflation trends 
C) labor-management relations 
D) exchange rate trends 
E) all of the above are included 
A) business cycle stages. 
B) inflation trends 
C) labor-management relations 
D) exchange rate trends 
E) all of the above are included

Question 16

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 17

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 18

The after-tax cash flows without the project are referred to as:

Accepted Answer

A) the net investment 
B) incremental cash flows 
C) the base case 
D) none of the above 
A) the net investment 
B) incremental cash flows 
C) the base case 
D) none of the above

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

The stage in the capital budgeting process that involves finding potential capital investment opportunities and determining whether a project involves a replacement decision and/or revenue expansion 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

All of the following statements are correct except:

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 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?

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

Which of the following statements is false?

All of the following statements are correct EXCEPT:

Which of the following is true of sunk costs?

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

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

Payback explicitly considers the time value of money.

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 capital-budgeting process starts with which one of the following stages:

Which of the following statements is correct?

Examples of external economic data required for project analysis include all of the following except:

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

All of the following statements are correct except:

The after-tax cash flows without the project are referred to as:

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

The stage in the capital budgeting process that involves finding potential capital investment opportunities and determining whether a project involves a replacement decision and/or revenue expansion is called the _____________ stage.

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:

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 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?

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

Which of the following statements is false?

All of the following statements are correct EXCEPT:

Which of the following is true of sunk costs?

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

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

Payback explicitly considers the time value of money.

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 capital-budgeting process starts with which one of the following stages:

Which of the following statements is correct?

Examples of external economic data required for project analysis include all of the following except:

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

All of the following statements are correct except:

The after-tax cash flows without the project are referred to as:

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

The stage in the capital budgeting process that involves finding potential capital investment opportunities and determining whether a project involves a replacement decision and/or revenue expansion is called the _____________ stage.

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