Question 1

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 higher than average profits to maximize shareholder wealth. 
E) none 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 higher than average profits to maximize shareholder wealth. 
E) none of the above statements are correct

Question 2

Internal rate of return (IRR) and net present value (NPV) methods:

Accepted Answer

A) generally arrive at the same accept/reject decisions 
B) are less sophisticated than the payback period 
C) cannot make use of the same cash flows 
D) can be substituted for by the payback period 
A) generally arrive at the same accept/reject decisions 
B) are less sophisticated than the payback period 
C) cannot make use of the same cash flows 
D) can be substituted for by the payback period

Question 3

Unlike other corporations undertaking the capital budgeting process, ___________ need to consider possible added political and economic risks such as the possibility of seizure of assets, unstable currencies, foreign exchange controls and foreign tax regulations.

Accepted Answer

A) MOGs. 
B) INCs. 
C) SWOTs. 
D) LTDs. 
E) none of the above 
A) MOGs. 
B) INCs. 
C) SWOTs. 
D) LTDs. 
E) none of the above

Question 4

In calculation of a payback period, what use is made of cash flows occurring after the end of the payback period?

Accepted Answer

A) they are ignored. 
B) they are discounted back to time zero. 
C) they are included in the accept/reject decision. 
D) they are normally canceled by initial negative cash flows. 
A) they are ignored. 
B) they are discounted back to time zero. 
C) they are included in the accept/reject decision. 
D) they are normally canceled by initial negative cash flows.

Question 5

In a capital budgeting context, a project's required rate of return is called the yield to maturity.

Accepted Answer

A) True 
 B)False

Question 6

The profitability index is the ratio between the some of the cash flows and the projects' cost.

Accepted Answer

A) True 
 B)False

Question 7

With independent projects, NPV and IRR provide identical accept/reject decisions.If, however, you have two mutually exclusive projects to evaluate, the most accurate thing you could say about the eventual results is that:

Accepted Answer

A) NPV and IRR may give conflicting resultsrankings 
B) NPV and IRR never give the same resultrankings 
C) NPV and IRR always give the same resultrankings 
D) IRR is more lenient in accepting 
A) NPV and IRR may give conflicting resultsrankings 
B) NPV and IRR never give the same resultrankings 
C) NPV and IRR always give the same resultrankings 
D) IRR is more lenient in accepting

Question 8

Two or more projects that perform the same function are said to be:

Accepted Answer

A) mutually exclusive projects 
B) independent projects 
C) joint projects 
D) none of the above 
A) mutually exclusive projects 
B) independent projects 
C) joint projects 
D) none of the above

Question 9

The final step in the capital budgeting process is

Accepted Answer

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

Question 10

Independent projects are not in direct competition with one another.

Accepted Answer

A) True 
 B)False

Question 11

When a project's net present value exceeds zero, then:

Accepted Answer

A) the project should be accepted 
B) the project will be acceptable using the payback period method 
C) the IRR should be calculated to ensure that the project's IRR exceeds the cost of capital 
D) both a and c are true 
A) the project should be accepted 
B) the project will be acceptable using the payback period method 
C) the IRR should be calculated to ensure that the project's IRR exceeds the cost of capital 
D) both a and c are true

Question 12

Positive NPV projects may originate from cost saving projects such as those that

Accepted Answer

A) reduce economies of scale. 
B) reduce product differentiation. 
C) reduce absolute cost advantages. 
D) fail to exploit advantages in distribution channels. 
E) none of the above statements are correct 
A) reduce economies of scale. 
B) reduce product differentiation. 
C) reduce absolute cost advantages. 
D) fail to exploit advantages in distribution channels. 
E) none of the above statements are correct

Question 13

The stage in the capital budgeting process in which projects that are accepted must be executed in a timely fashion is called the _____________ stage.

Accepted Answer

A) follow-up. 
B) selection. 
C) identification. 
D) implementation. 
E) none of the above are included 
A) follow-up. 
B) selection. 
C) identification. 
D) implementation. 
E) none of the above are included

Question 14

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 large 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 large initial investments and may involve acquiring or constructing plant and equipment. 
E) all of the above statements are correct

Question 15

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 16

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

Accepted Answer

A) market imperfections or inefficiencies such as a monopoly situation. 
B) cost-saving projects that allow the firm to reduce costs below the current level such as economies of scale and access to distribution channels. 
C) government contracts or preferences. dc.two both of the above are correct. 
D) all none of the above statements are correct 
A) market imperfections or inefficiencies such as a monopoly situation. 
B) cost-saving projects that allow the firm to reduce costs below the current level such as economies of scale and access to distribution channels. 
C) government contracts or preferences. dc.two both of the above are correct. 
D) all none of the above statements are correct

Question 17

What is the payback period for Sweetbay Supermarket's new project if 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, $700,000 in year 3 and $1,800,000 in year 4?

Accepted Answer

A) 4.33 years 
B) 3.33 years 
C) 2.33 years 
D) none of the above 
A) 4.33 years 
B) 3.33 years 
C) 2.33 years 
D) none of the above

Question 18

The internal rate of return concept is best explained by which of the following?

Accepted Answer

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

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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 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

Which of the following statements is correct?

Internal rate of return (IRR) and net present value (NPV) methods:

Unlike other corporations undertaking the capital budgeting process, ___________ need to consider possible added political and economic risks such as the possibility of seizure of assets, unstable currencies, foreign exchange controls and foreign tax regulations.

In calculation of a payback period, what use is made of cash flows occurring after the end of the payback period?

In a capital budgeting context, a project's required rate of return is called the yield to maturity.

The profitability index is the ratio between the some of the cash flows and the projects' cost.

With independent projects, NPV and IRR provide identical accept/reject decisions.If, however, you have two mutually exclusive projects to evaluate, the most accurate thing you could say about the eventual results is that:

Two or more projects that perform the same function are said to be:

The final step in the capital budgeting process is

Independent projects are not in direct competition with one another.

When a project's net present value exceeds zero, then:

Positive NPV projects may originate from cost saving projects such as those that

The stage in the capital budgeting process in which projects that are accepted must be executed in a timely fashion is called the _____________ stage.

All of the following statements are correct except:

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

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

What is the payback period for Sweetbay Supermarket's new project if 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, $700,000 in year 3 and $1,800,000 in year 4?

The internal rate of return concept is best explained by which of the following?

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

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

Which of the following statements is correct?

Internal rate of return (IRR) and net present value (NPV) methods:

Unlike other corporations undertaking the capital budgeting process, ___________ need to consider possible added political and economic risks such as the possibility of seizure of assets, unstable currencies, foreign exchange controls and foreign tax regulations.

In calculation of a payback period, what use is made of cash flows occurring after the end of the payback period?

In a capital budgeting context, a project's required rate of return is called the yield to maturity.

The profitability index is the ratio between the some of the cash flows and the projects' cost.

With independent projects, NPV and IRR provide identical accept/reject decisions.If, however, you have two mutually exclusive projects to evaluate, the most accurate thing you could say about the eventual results is that:

Two or more projects that perform the same function are said to be:

The final step in the capital budgeting process is

Independent projects are not in direct competition with one another.

When a project's net present value exceeds zero, then:

Positive NPV projects may originate from cost saving projects such as those that

The stage in the capital budgeting process in which projects that are accepted must be executed in a timely fashion is called the _____________ stage.

All of the following statements are correct except:

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

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

What is the payback period for Sweetbay Supermarket's new project if 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, $700,000 in year 3 and $1,800,000 in year 4?

The internal rate of return concept is best explained by which of the following?

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

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