Question 1

The time required for the cumulative cash flows from a project to equal zero is called the:

Accepted Answer

A) profitability index 
B) cash flow time frame 
C) project life 
D) payback period 
A) profitability index 
B) cash flow time frame 
C) project life 
D) payback period

Question 2

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 NPV of the project is _________ million and the firm should _________ the project.

Accepted Answer

A) $151.63; accept 
B) -$151.63, reject 
C) $4.37, accept 
D) -$4.37, reject 
E) none of the above 
A) $151.63; accept 
B) -$151.63, reject 
C) $4.37, accept 
D) -$4.37, reject 
E) none of the above

Question 3

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

Accepted Answer

A) financing costs 
B) quantity and quality of labor force in different locations 
C) labor-management relations 
D) status of technological change in the industry 
E) all of the above are included 
A) financing costs 
B) quantity and quality of labor force in different locations 
C) labor-management relations 
D) status of technological change in the industry 
E) all of the above are included

Question 4

When considering the time value of money, which of the following four methods of project evaluation would appear to be the least satisfactory?

Accepted Answer

A) internal rate of return 
B) profitability index 
C) net present value 
D) payback period method 
A) internal rate of return 
B) profitability index 
C) net present value 
D) payback period method

Question 5

The stand alone principle suggests that a project must be viewed separately from the rest of the firm.

Accepted Answer

A) True 
 B)False

Question 6

One weakness of the payback period method is that all cash flows beyond the payback period are ignored.

Accepted Answer

A) True 
 B)False

Question 7

The risk-adjusted discount rate (RADR) is the risk adjustment factor that represents the percent of estimated cash inflows that investors would be satisfied to receive for certain rather than the cash inflows that are possible for each year.

Accepted Answer

A) True 
 B)False

Question 8

a sunk cost is a project-related expense that is dependent upon whether or not the project is undertaken.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) 	create economies of scale. 
B) 	generate absolute cost advantages. 
C) 	exploit advantages in distribution channels. 
D) 	all of the above statements are correct 
A) 	create economies of scale. 
B) 	generate absolute cost advantages. 
C) 	exploit advantages in distribution channels. 
D) 	all of the above statements are correct

Question 10

Which of the following statements is correct?

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 reduce a firm's competitive advantage and by so doing decrease shareholders' wealth. 
C) By its nature, capital budgeting involves short-term projects. 
D) Capital budgeting projects usually require small initial investments and may involve acquiring or constructing plant and equipment. 
E) none 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 reduce a firm's competitive advantage and by so doing decrease shareholders' wealth. 
C) By its nature, capital budgeting involves short-term projects. 
D) Capital budgeting projects usually require small initial investments and may involve acquiring or constructing plant and equipment. 
E) none of the above statements are correct

Question 11

The profitability index is the least preferable method to use to evaluate capital budgeting projects because it does not take the time value of money into account.

Accepted Answer

A) True 
 B)False

Question 12

Stages of the capital budgeting include all of the following except:

Accepted Answer

A) follow-up. 
B) selection. 
C) identification. 
D) development. 
E) all of the above are included 
A) follow-up. 
B) selection. 
C) identification. 
D) development. 
E) all of the above are included

Question 13

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 14

All of the following are considered stages in the capital budgeting process EXCEPT:

Accepted Answer

A) development 
B) identification 
C) implementation 
D) selection 
E) all are included in the capital budgeting process 
A) development 
B) identification 
C) implementation 
D) selection 
E) all are included in the capital budgeting process

Question 15

The IRR None of the above clone of the prior item

Accepted Answer

A) shows the graphical relationship between a project's NPV and cost of capital. 
B) is the return that causes the NPV to be negative. 
C) is the return that causes the NPV to be positive. 
D) measures the firm and project's required rate of return. 
E) none of the above 
A) shows the graphical relationship between a project's NPV and cost of capital. 
B) is the return that causes the NPV to be negative. 
C) is the return that causes the NPV to be positive. 
D) measures the firm and project's required rate of return. 
E) none of the above

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

The net present value and internal rate of return methods will always agree on whether a project enhances or harms shareholder wealth.

Accepted Answer

A) True 
 B)False

Question 18

A positive NPV suggests that a project produces sufficient cash flows to cover not only its initial cost, but also all financing costs.

Accepted Answer

A) True 
 B)False

Question 19

The internal rate of return is the return that caused the net present value to be zero.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

The time required for the cumulative cash flows from a project to equal zero is called the:

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

When considering the time value of money, which of the following four methods of project evaluation would appear to be the least satisfactory?

The stand alone principle suggests that a project must be viewed separately from the rest of the firm.

One weakness of the payback period method is that all cash flows beyond the payback period are ignored.

The risk-adjusted discount rate (RADR) is the risk adjustment factor that represents the percent of estimated cash inflows that investors would be satisfied to receive for certain rather than the cash inflows that are possible for each year.

a sunk cost is a project-related expense that is dependent upon whether or not the project is undertaken.

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

Which of the following statements is correct?

The profitability index is the least preferable method to use to evaluate capital budgeting projects because it does not take the time value of money into account.

Stages of the capital budgeting include all of the following 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.If the firm's required return or cost of capital is 10%, the NPV of the project is:

All of the following are considered stages in the capital budgeting process EXCEPT:

The IRR None of the above clone of the prior item

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

The net present value and internal rate of return methods will always agree on whether a project enhances or harms shareholder wealth.

A positive NPV suggests that a project produces sufficient cash flows to cover not only its initial cost, but also all financing costs.

The internal rate of return is the return that caused the net present value to be zero.

A firm's cost of capital is discount rate used in the evaluation of capital budgeting projects using NPV 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

The time required for the cumulative cash flows from a project to equal zero is called the:

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

When considering the time value of money, which of the following four methods of project evaluation would appear to be the least satisfactory?

The stand alone principle suggests that a project must be viewed separately from the rest of the firm.

One weakness of the payback period method is that all cash flows beyond the payback period are ignored.

The risk-adjusted discount rate (RADR) is the risk adjustment factor that represents the percent of estimated cash inflows that investors would be satisfied to receive for certain rather than the cash inflows that are possible for each year.

a sunk cost is a project-related expense that is dependent upon whether or not the project is undertaken.

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

Which of the following statements is correct?

The profitability index is the least preferable method to use to evaluate capital budgeting projects because it does not take the time value of money into account.

Stages of the capital budgeting include all of the following 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.If the firm's required return or cost of capital is 10%, the NPV of the project is:

All of the following are considered stages in the capital budgeting process EXCEPT:

The IRR None of the above clone of the prior item

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

The net present value and internal rate of return methods will always agree on whether a project enhances or harms shareholder wealth.

A positive NPV suggests that a project produces sufficient cash flows to cover not only its initial cost, but also all financing costs.

The internal rate of return is the return that caused the net present value to be zero.

A firm's cost of capital is discount rate used in the evaluation of capital budgeting projects using NPV 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