Question 1

All of the groups of cash flows from the firm's statement of cash flows are also used in the analysis of project cash flows EXCEPT:

Accepted Answer

A) cash flow from financing 
B) cash flow from investment 
C) cash flow from operations 
D) all are included 
A) cash flow from financing 
B) cash flow from investment 
C) cash flow from operations 
D) all are included

Question 2

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 3

Expansion projects involving new areas and product lines are usually associated with greater cash inflow uncertainty.

Accepted Answer

A) True 
 B)False

Question 4

Sound capital budgeting decisions require a variety of information including internal financial data, external economic and political data, and non-financial data.

Accepted Answer

A) True 
 B)False

Question 5

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 10%, the NPV of the project is:

Accepted Answer

A) $5,000 
B) $6,862 
C) -$5,000 
D) -$6,862 
E) none of the above 
A) $5,000 
B) $6,862 
C) -$5,000 
D) -$6,862 
E) none of the above

Question 6

Any positive economic profit or positive net present value must arise from None of the above clone of the prior item.

Accepted Answer

A) a perfectly competitive market situation. 
B) cost-producing projects that allow the firm to increase costs above 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) none of the above statements are correct 
A) a perfectly competitive market situation. 
B) cost-producing projects that allow the firm to increase costs above 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) none of the above statements are correct

Question 7

Nonfinancial information plays no part in capital budgeting.

Accepted Answer

A) True 
 B)False

Question 8

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 9

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 10

The majority of capital budgeting projects are short-lived projects.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is correct?

Accepted Answer

A) Capital budgeting analysis is not a framework for evaluating all business decisions; it is only a tool for the "financial" types. 
B) Proper analysis will identify irrelevant cash flows and an appropriate discount rate to reflect the risk of the strategy and will compare the benefits and costs of the project without 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 not a framework for evaluating all business decisions; it is only a tool for the "financial" types. 
B) Proper analysis will identify irrelevant cash flows and an appropriate discount rate to reflect the risk of the strategy and will compare the benefits and costs of the project without 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 12

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 13

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 14

The selection stage involves applying the appropriate capital budgeting techniques to help make a final decision.

Accepted Answer

A) True 
 B)False

Question 15

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 16

The higher the risk of a project, the higher its risk-adjusted discount rate and thus the lower the net present value for a given stream of cash inflows.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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) PI. 
D) NPV. 
E) none of the above are correct 
A) MIRR. 
B) IRR. 
C) PI. 
D) NPV. 
E) none of the above are correct

Question 19

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 20

If a project has a positive net present value, then the profitability index is:

Accepted Answer

A) greater than one 
B) less than one 
C) equal to one 
D) cannot tell from this information 
A) greater than one 
B) less than one 
C) equal to one 
D) cannot tell from this information

All of the groups of cash flows from the firm's statement of cash flows are also used in the analysis of project cash flows EXCEPT:

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

Expansion projects involving new areas and product lines are usually associated with greater cash inflow uncertainty.

Sound capital budgeting decisions require a variety of information including internal financial data, external economic and political data, and non-financial data.

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 10%, the NPV of the project is:

Any positive economic profit or positive net present value must arise from None of the above clone of the prior item.

Nonfinancial information plays no part in capital budgeting.

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

All of the following statements are correct except:

The majority of capital budgeting projects are short-lived projects.

Which of the following statements is correct?

The stand-alone principle means that:

The selection stage involves applying the appropriate capital budgeting techniques to help make a final decision.

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?

The higher the risk of a project, the higher its risk-adjusted discount rate and thus the lower the net present value for a given stream of cash inflows.

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.

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

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

If a project has a positive net present value, then the profitability index is:

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Financial Return and Risk Concepts

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Exam 17: Capital Budgeting Analysis

All of the groups of cash flows from the firm's statement of cash flows are also used in the analysis of project cash flows EXCEPT:

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

Expansion projects involving new areas and product lines are usually associated with greater cash inflow uncertainty.

Sound capital budgeting decisions require a variety of information including internal financial data, external economic and political data, and non-financial data.

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 10%, the NPV of the project is:

Any positive economic profit or positive net present value must arise from None of the above clone of the prior item.

Nonfinancial information plays no part in capital budgeting.

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

All of the following statements are correct except:

The majority of capital budgeting projects are short-lived projects.

Which of the following statements is correct?

The stand-alone principle means that:

The selection stage involves applying the appropriate capital budgeting techniques to help make a final decision.

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?

The higher the risk of a project, the higher its risk-adjusted discount rate and thus the lower the net present value for a given stream of cash inflows.

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.

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

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

If a project has a positive net present value, then the profitability index is:

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