Question 1

Errors resulting from a capital budgeting decision are not considered major since the consequences of such errors average out over the life of the investment.

Accepted Answer

A) True 
 B)False

Question 2

It is possible for a project to have more than one IRR if there is more than one sign change in the after-tax cash flows due to the project.

Accepted Answer

A) True 
 B)False

Question 3

Why is it so difficult for firms to find good investment ideas?

Accepted Answer

All firms are competing to maximize thei

Question 4

Project Sigma requires an investment of $1 million and has a NPV of $10.Project Delta requires an investment of $500,000 and has a NPV of $150,000.The projects involve unrelated new product lines.

Accepted Answer

A) Both projects should be accepted because they have positive NPV's. 
B) Neither project should be accepted because they might compete with one another. 
C) Only project Delta should be accepted.Alpha's NPV is too low for the investment. 
D) The company should look at other investment criteria,not just NPV. 
A) Both projects should be accepted because they have positive NPV's. 
B) Neither project should be accepted because they might compete with one another. 
C) Only project Delta should be accepted.Alpha's NPV is too low for the investment. 
D) The company should look at other investment criteria,not just NPV.

Question 5

Frazier Fudge has a project with an initial outlay of $40,000,followed by three years of annual incremental cash flows of $35,000.The terminal cash flow of the project is $10,000.Assuming a cost of capital of 10%,calculate the MIRR of the project.

Accepted Answer

A) 46.5% 
B) 51.3% 
C) 62.9% 
D) 74.7% 
A) 46.5% 
B) 51.3% 
C) 62.9% 
D) 74.7%

Question 6

Black Friday Inc.has estimated the following cash flows for a project it is considering:
   
a.What is the payback period for this project?
b.What is the obvious problem with using the payback method in this case?

Accepted Answer

The payback period is exactly 2 years (7

Question 7

MacHinery Manufacturing Company is considering a three-year project that has a cost of $75,000.The project will generate after-tax cash flows of $33,100 in Year 1,$31,500 in Year 2,and $31,200 in Year 3.Assume that the firm's proper rate of discount is 10% and that the firm's tax rate is 40%.What is the project's payback?

Accepted Answer

A) 0.33 years 
B) 1.22 years 
C) 2.33 years 
D) Three years 
A) 0.33 years 
B) 1.22 years 
C) 2.33 years 
D) Three years

Question 8

Webley Corp.is considering two expansion options,but does not have enough capital to undertake both,Project W requires an investment of $100,000 and has an NPV of $10,000.Project D requires an investment of $80,000 and has an NPV of $8,200.If Webley use the profitability index to decide,it should:

Accepted Answer

A) choose D because it has a higher profitability index. 
B) choose W because it has a higher profitability index. 
C) choose D because it has a lower profitability index. 
D) choose W because it has a higher profitability index 
A) choose D because it has a higher profitability index. 
B) choose W because it has a higher profitability index. 
C) choose D because it has a lower profitability index. 
D) choose W because it has a higher profitability index

Question 9

Aroma Candles,Inc.is evaluating a project with the following cash flows.Calculate the IRR of the project.(Round to the nearest whole percentage. )

Accepted Answer

A) 18% 
B) 23% 
C) 28% 
D) 33% 
A) 18% 
B) 23% 
C) 28% 
D) 33%

Errors resulting from a capital budgeting decision are not considered major since the consequences of such errors average out over the life of the investment.

It is possible for a project to have more than one IRR if there is more than one sign change in the after-tax cash flows due to the project.

Why is it so difficult for firms to find good investment ideas?

Project Sigma requires an investment of $1 million and has a NPV of $10.Project Delta requires an investment of $500,000 and has a NPV of $150,000.The projects involve unrelated new product lines.

Frazier Fudge has a project with an initial outlay of $40,000,followed by three years of annual incremental cash flows of $35,000.The terminal cash flow of the project is $10,000.Assuming a cost of capital of 10%,calculate the MIRR of the project.

Black Friday Inc.has estimated the following cash flows for a project it is considering: a.What is the payback period for this project? b.What is the obvious problem with using the payback method in this case?

Webley Corp.is considering two expansion options,but does not have enough capital to undertake both,Project W requires an investment of $100,000 and has an NPV of $10,000.Project D requires an investment of $80,000 and has an NPV of $8,200.If Webley use the profitability index to decide,it should:

Aroma Candles,Inc.is evaluating a project with the following cash flows.Calculate the IRR of the project.(Round to the nearest whole percentage. )

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 11: Investment Decision Criteria

Errors resulting from a capital budgeting decision are not considered major since the consequences of such errors average out over the life of the investment.

It is possible for a project to have more than one IRR if there is more than one sign change in the after-tax cash flows due to the project.

Why is it so difficult for firms to find good investment ideas?

Project Sigma requires an investment of $1 million and has a NPV of $10.Project Delta requires an investment of $500,000 and has a NPV of $150,000.The projects involve unrelated new product lines.

Frazier Fudge has a project with an initial outlay of $40,000,followed by three years of annual incremental cash flows of $35,000.The terminal cash flow of the project is $10,000.Assuming a cost of capital of 10%,calculate the MIRR of the project.

Black Friday Inc.has estimated the following cash flows for a project it is considering: a.What is the payback period for this project? b.What is the obvious problem with using the payback method in this case?

Webley Corp.is considering two expansion options,but does not have enough capital to undertake both,Project W requires an investment of $100,000 and has an NPV of $10,000.Project D requires an investment of $80,000 and has an NPV of $8,200.If Webley use the profitability index to decide,it should:

Aroma Candles,Inc.is evaluating a project with the following cash flows.Calculate the IRR of the project.(Round to the nearest whole percentage. )

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters