Question 1

Capital budgeting is not:

Accepted Answer

A)  the process of identifying, evaluating, and implementing a firm's working capital requirements. 
B)  the process of identifying, evaluating, and implementing a firm's objectives. 
C)  the process of identifying, evaluating, and implementing a firm's strategic plans. 
D)  the process of identifying, evaluating, and implementing a firm's financing 
A)  the process of identifying, evaluating, and implementing a firm's working capital requirements. 
B)  the process of identifying, evaluating, and implementing a firm's objectives. 
C)  the process of identifying, evaluating, and implementing a firm's strategic plans. 
D)  the process of identifying, evaluating, and implementing a firm's financing A

Question 2

A profitability index of two means that the project returns a present value of $2 for every $1 invested.

Accepted Answer

A) True 
 B)False  True

Question 3

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. 
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. D

Question 4

The typical capital budgeting project involves a large up-front cash outlay, followed by a series of smaller net cash outflows.

Accepted Answer

A) True 
 B)False

Question 5

The capital budgeting process consists of all of the following stages except:

Accepted Answer

A)  follow-up. 
B)  selection. 
C)  reversing. 
D)  development. 
A)  follow-up. 
B)  selection. 
C)  reversing. 
D)  development.

Question 6

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 
A)  9.9; accept 
B)  9.9, reject 
C)  8.9, accept 
D)  8.9, reject

Question 7

The depreciation tax shield equals the amount of the depreciation expense multiplied by the firm's tax rate.

Accepted Answer

A) True 
 B)False

Question 8

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 typical 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. 
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 typical 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.

Question 9

The stage in the capital budgeting process that involves applying the appropriate capital budgeting techniques to help make a final accept or reject decision is called the _____________ stage.

Accepted Answer

A)  follow-up. 
B)  selection. 
C)  identification. 
D)  development. 
A)  follow-up. 
B)  selection. 
C)  identification. 
D)  development.

Question 10

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)  cash flow from depreciation 
A)  cash flow from financing 
B)  cash flow from investment 
C)  cash flow from operations 
D)  cash flow from depreciation

Question 11

The profitability of a firm is affected to the greatest extent by its management's success in making capital budget investment decisions.

Accepted Answer

A) True 
 B)False

Question 12

In the case of mutually exclusive projects:

Accepted Answer

A)  the financial manager is responsible for choosing the average of these alternatives since only one can be chosen; selecting one project requires the selection of the other. 
B)  they are to be evaluated based on their expected effect on shareholder wealth; the project that enhances shareholder wealth the most should be included in the firm's capital budget. 
C)  the financial manager is responsible for choosing the top three of these alternatives since only three can be chosen. 
D)  they are to be evaluated based on their past effect on shareholder wealth; all such projects that enhance shareholder wealth should be included in the firm's capital budget. 
A)  the financial manager is responsible for choosing the average of these alternatives since only one can be chosen; selecting one project requires the selection of the other. 
B)  they are to be evaluated based on their expected effect on shareholder wealth; the project that enhances shareholder wealth the most should be included in the firm's capital budget. 
C)  the financial manager is responsible for choosing the top three of these alternatives since only three can be chosen. 
D)  they are to be evaluated based on their past effect on shareholder wealth; all such projects that enhance shareholder wealth should be included in the firm's capital budget.

Question 13

In Excel, you find the MIRR ranking for a project using the "=MIRR()" function.

Accepted Answer

A) True 
 B)False

Question 14

What is the NPV for the following project if its cost of capital is 12% and 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, $1,700,000 in year 3, and ($1,300,000) in year 4?

Accepted Answer

A)  ($1,494,336) 
B)  $1,494,336 
C)  $4,321,914 
D)  ($4,321,914) 
A)  ($1,494,336) 
B)  $1,494,336 
C)  $4,321,914 
D)  ($4,321,914)

Question 15

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)  1.33 
A)  4.33 years 
B)  3.33 years 
C)  2.33 years 
D)  1.33

Question 16

Capital budgeting decisions can only involve mutually exclusive projects.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  create economies of scale. 
B)  generate negative cost advantages. 
C)  ignore advantages in distribution channels. 
D)  always use new processes or equipment 
A)  create economies of scale. 
B)  generate negative cost advantages. 
C)  ignore advantages in distribution channels. 
D)  always use new processes or equipment

Question 18

A technique that solves some of the problems presented by IRR.

Accepted Answer

A)  NPV 
B)  MIRR 
C)  Adjusted IRR 
D)  SWOT 
A)  NPV 
B)  MIRR 
C)  Adjusted IRR 
D)  SWOT

Question 19

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. 
A)  MIRR. 
B)  IRR. 
C)  PI. 
D)  NPV.

Question 20

Incremental cash flows represents a project's cash flows summed together with the firm's other cash flows to get a total firm view of the project.

Accepted Answer

A) True 
 B)False

Capital budgeting is not:

A profitability index of two means that the project returns a present value of $2 for every $1 invested.

Which of the following statements is correct?

The typical capital budgeting project involves a large up-front cash outlay, followed by a series of smaller net cash outflows.

The capital budgeting process consists of all of the following stages except:

The depreciation tax shield equals the amount of the depreciation expense multiplied by the firm's tax rate.

Which of the following statements is correct?

The stage in the capital budgeting process that involves applying the appropriate capital budgeting techniques to help make a final accept or reject decision is called the _____________ stage.

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:

The profitability of a firm is affected to the greatest extent by its management's success in making capital budget investment decisions.

In the case of mutually exclusive projects:

In Excel, you find the MIRR ranking for a project using the "=MIRR()" function.

What is the NPV for the following project if its cost of capital is 12% and 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, $1,700,000 in year 3, and ($1,300,000) in year 4?

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?

Capital budgeting decisions can only involve mutually exclusive projects.

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

A technique that solves some of the problems presented by IRR.

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

Incremental cash flows represents a project's cash flows summed together with the firm's other cash flows to get a total firm view of the project.

The Financial Environment

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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 Valuations

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

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Capital Structure and the Cost of Capital

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Exam 17: Capital Budgeting Analysis

Capital budgeting is not:

A profitability index of two means that the project returns a present value of $2 for every $1 invested.

Which of the following statements is correct?

The typical capital budgeting project involves a large up-front cash outlay, followed by a series of smaller net cash outflows.

The capital budgeting process consists of all of the following stages except:

The depreciation tax shield equals the amount of the depreciation expense multiplied by the firm's tax rate.

Which of the following statements is correct?

The stage in the capital budgeting process that involves applying the appropriate capital budgeting techniques to help make a final accept or reject decision is called the _____________ stage.

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:

The profitability of a firm is affected to the greatest extent by its management's success in making capital budget investment decisions.

In the case of mutually exclusive projects:

In Excel, you find the MIRR ranking for a project using the "=MIRR()" function.

What is the NPV for the following project if its cost of capital is 12% and 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, $1,700,000 in year 3, and ($1,300,000) in year 4?

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?

Capital budgeting decisions can only involve mutually exclusive projects.

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

A technique that solves some of the problems presented by IRR.

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

Incremental cash flows represents a project's cash flows summed together with the firm's other cash flows to get a total firm view of the project.

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 Valuations

Securities and 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