Question 1

Projects are said to be mutually exclusive when undertaking one precludes doing the other(s).

Accepted Answer

A) True 
 B)False  True

Question 2

The profitability index is a variation of the ____ method.

Accepted Answer

A)  NPV 
B)  IRR 
C)  payback 
D)  Both a & c 
A)  NPV 
B)  IRR 
C)  payback 
D)  Both a & c A

Question 3

An outlay of $180,000 is expected to yield the following cash flows: Year Net Cash Flow
1 75,000
2 55,000
3 60,000
4 25,000
5 15,000
6 10,000
The cost of capital is 12 percent. What is the NPV?

Accepted Answer

A)  $8,505 
B)  $5,070 
C)  $3,525 
D)  $2,982 
A)  $8,505 
B)  $5,070 
C)  $3,525 
D)  $2,982 D

Question 4

A stand-alone capital project has the following cash flows. $\begin{array}{lll}
\text { Year } & 0 &{1-5}\
\text { CashFlow } & (\$ 100,000) &{\$ 28,000}
\end{array}$ What is its NPV if the cost of capital is 10%?

Accepted Answer

A)  $106,142 
B)  ($6,142) 
C)  $934 
D)  $6,142 
A)  $106,142 
B)  ($6,142) 
C)  $934 
D)  $6,142

Question 5

The objective in solving capital rationing problems is to:

Accepted Answer

A)  accept all projects with a PI greater than 1.1. 
B)  maximize the average IRR of the projects that are accepted. 
C)  maximize the total NPV of the projects that are accepted. 
D)  minimize the firm's cost of capital. 
A)  accept all projects with a PI greater than 1.1. 
B)  maximize the average IRR of the projects that are accepted. 
C)  maximize the total NPV of the projects that are accepted. 
D)  minimize the firm's cost of capital.

Question 6

The easiest way to compare projects with unequal lives is by using:

Accepted Answer

A)  IRR. 
B)  the replacement chain method. 
C)  the equivalent annual annuity method. 
D)  Either b or c 
A)  IRR. 
B)  the replacement chain method. 
C)  the equivalent annual annuity method. 
D)  Either b or c

Question 7

The money needed to get a project started is generally referred to as the initial outlay. It includes all cash outflows:

Accepted Answer

A)  before the start of the project and in its first year. 
B)  throughout the life of the project. 
C)  before or at the start of the project, generally referred to as at time zero. 
D)  already spent. 
A)  before the start of the project and in its first year. 
B)  throughout the life of the project. 
C)  before or at the start of the project, generally referred to as at time zero. 
D)  already spent.

Question 8

A stand-alone capital project has the following projected cash flows: $\begin{array}{lllll}
\text { Year } & 0 & 1 & 2 & 3 \
\text { Cash flow } & (\$ 4,000) & \$ 1,500 & \$1,200 & \$ 2,395
\end{array}$ If the firm's cost of capital is 14%, which of the following statements is true?

Accepted Answer

A)  the IRR is greater than the cost of capital and the project should be undertaken 
B)  the project should be rejected because the IRR is 12%, which is less than the project's cost of capital 
C)  the IRR is less than 12% and the project should be undertaken 
D)  the NPV of the project is positive and the project should be undertaken 
A)  the IRR is greater than the cost of capital and the project should be undertaken 
B)  the project should be rejected because the IRR is 12%, which is less than the project's cost of capital 
C)  the IRR is less than 12% and the project should be undertaken 
D)  the NPV of the project is positive and the project should be undertaken

Question 9

Capital projects are said to be mutually exclusive when:

Accepted Answer

A)  the financial viability of a single project is being evaluated. 
B)  two or more projects are being evaluated and doing one precludes doing another. 
C)  one project is much easier to do than another. 
D)  b and c 
A)  the financial viability of a single project is being evaluated. 
B)  two or more projects are being evaluated and doing one precludes doing another. 
C)  one project is much easier to do than another. 
D)  b and c

Question 10

Sigma is thinking about purchasing a new clam digger for $14,000. The expected net cash flows resulting from the digger are $9,000 in year 1, $7,000 in year 2, $5,000 in year 3, and $3,000 in year 4. Should Sigma purchase this digger if its cost of capital is 12 percent?

Accepted Answer

A)  Yes, NPV = $3,176 
B)  Yes, NPV = $5,084 
C)  Yes, NPV = $16,605 
D)  Yes, NPV= $19,084 
A)  Yes, NPV = $3,176 
B)  Yes, NPV = $5,084 
C)  Yes, NPV = $16,605 
D)  Yes, NPV= $19,084

Question 11

The projected cash flows for a project are:
   If the firm's cost of capital is 12%, what are the project's net present value and internal rate of return?

Accepted Answer

($7,647)
Calculator steps ($00

Question 12

A firm's cost of capital is:

Accepted Answer

A)  the time value of money calculated on the capital owned by a business. 
B)  the average return it pays to investors for the use of their money. 
C)  the cost a firm incurs while operating a business. 
D)  None of the above 
A)  the time value of money calculated on the capital owned by a business. 
B)  the average return it pays to investors for the use of their money. 
C)  the cost a firm incurs while operating a business. 
D)  None of the above

Question 13

The net present value (NPV) method assumes that cash flows are reinvested at the:

Accepted Answer

A)  IRR. 
B)  cost of capital. 
C)  average rate it pays investors. 
D)  Both b & c 
A)  IRR. 
B)  cost of capital. 
C)  average rate it pays investors. 
D)  Both b & c

Question 14

A project's ____ is the sum of the present values of all cash inflows and outflows discounted at the cost of capital.

Accepted Answer

A)  NPV 
B)  IRR 
C)  payback period 
D)  All of the above 
A)  NPV 
B)  IRR 
C)  payback period 
D)  All of the above

Question 15

The future cash flows of a stand-alone capital project follow: $\begin{array}{lllll}
\text { Year } & 0 & 1 & 2 & 3 \
\text { Cash flow } & (\$ 5,000) & \$ 2,000 & \$ 2,000 & \$ 2,000
\end{array}$ With the project's approximate IRR?

Accepted Answer

A)  10% 
B)  12% 
C)  8% 
D)  ($26) 
A)  10% 
B)  12% 
C)  8% 
D)  ($26)

Question 16

One weakness of the internal rate of return approach is that:

Accepted Answer

A)  it does not directly consider the timing of the cash flows from a project. 
B)  it fails to provide a straightforward decision rule. 
C)  it implicitly assumes that the firm is able to reinvest the interim cash flows from a project at the firm's cost of capital. 
D)  None of the above 
A)  it does not directly consider the timing of the cash flows from a project. 
B)  it fails to provide a straightforward decision rule. 
C)  it implicitly assumes that the firm is able to reinvest the interim cash flows from a project at the firm's cost of capital. 
D)  None of the above

Question 17

A project requires an initial outlay of $100,000, and is expected to generate annual net cash inflows of $28,000 for the next 5 years. Determine the payback period for the project.

Accepted Answer

A)  0.28 years 
B)  1.4 years 
C)  3.57 years 
D)  17.86 years 
A)  0.28 years 
B)  1.4 years 
C)  3.57 years 
D)  17.86 years

Question 18

Capital rationing may involve:

Accepted Answer

A)  accepting projects with negative NPVs. 
B)  rejecting projects with positive NPVs. 
C)  limitations on the number of project proposals that are submitted for evaluation. 
D)  allocating available capital among all project proposals with positive NPVs. 
A)  accepting projects with negative NPVs. 
B)  rejecting projects with positive NPVs. 
C)  limitations on the number of project proposals that are submitted for evaluation. 
D)  allocating available capital among all project proposals with positive NPVs.

Question 19

Although the NPV method is technically superior, the IRR method is used more frequently.

Accepted Answer

A) True 
 B)False

Question 20

In addition to justifying how capital dollars are spent, capital budgeting provides a basis for choosing among alternative capital projects.

Accepted Answer

A) True 
 B)False

Projects are said to be mutually exclusive when undertaking one precludes doing the other(s).

The profitability index is a variation of the ____ method.

An outlay of $180,000 is expected to yield the following cash flows: Year Net Cash Flow 1 75,000 2 55,000 3 60,000 4 25,000 5 15,000 6 10,000 The cost of capital is 12 percent. What is the NPV?

A stand-alone capital project has the following cash flows. Year 0 1-5 CashFlow (\ 100,000) \ 28,000 What is its NPV if the cost of capital is 10%?

The objective in solving capital rationing problems is to:

The easiest way to compare projects with unequal lives is by using:

The money needed to get a project started is generally referred to as the initial outlay. It includes all cash outflows:

A stand-alone capital project has the following projected cash flows: Year 0 1 2 3 Cash flow (\ 4,000) \ 1,500 \1 ,200 \ 2,395 If the firm's cost of capital is 14%, which of the following statements is true?

Capital projects are said to be mutually exclusive when:

Sigma is thinking about purchasing a new clam digger for $14,000. The expected net cash flows resulting from the digger are $9,000 in year 1, $7,000 in year 2, $5,000 in year 3, and $3,000 in year 4. Should Sigma purchase this digger if its cost of capital is 12 percent?

The projected cash flows for a project are: If the firm's cost of capital is 12%, what are the project's net present value and internal rate of return?

A firm's cost of capital is:

The net present value (NPV) method assumes that cash flows are reinvested at the:

A project's ____ is the sum of the present values of all cash inflows and outflows discounted at the cost of capital.

The future cash flows of a stand-alone capital project follow: Year 0 1 2 3 Cash flow (\ 5,000) \ 2,000 \ 2,000 \ 2,000 With the project's approximate IRR?

One weakness of the internal rate of return approach is that:

A project requires an initial outlay of $100,000, and is expected to generate annual net cash inflows of $28,000 for the next 5 years. Determine the payback period for the project.

Capital rationing may involve:

Although the NPV method is technically superior, the IRR method is used more frequently.

In addition to justifying how capital dollars are spent, capital budgeting provides a basis for choosing among alternative capital projects.

Foundations

Financial Background: a Review of Accounting, Financial Statements, and Taxes

Cash Flows and Financial Analysis

Financial Planning

The Financial System, Corporate Governance, and Interest

Time Value of Money

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

Risk and Return

Cash Flow Estimation

Risk Topics and Real Options in Capital Budgeting

Cost of Capital

Capital Structure and Leverage

Dividends

The Management of Working Capital Multiple Choice Questions

The Management of Working Capital

Corporate Restructuring

International Finance

Filters

Exam 10: Capital Budgeting

Projects are said to be mutually exclusive when undertaking one precludes doing the other(s).

The profitability index is a variation of the ____ method.

An outlay of $180,000 is expected to yield the following cash flows: Year Net Cash Flow 1 75,000 2 55,000 3 60,000 4 25,000 5 15,000 6 10,000 The cost of capital is 12 percent. What is the NPV?

A stand-alone capital project has the following cash flows. Year 0 1-5 CashFlow (\ 100,000) \ 28,000 What is its NPV if the cost of capital is 10%?

The objective in solving capital rationing problems is to:

The easiest way to compare projects with unequal lives is by using:

The money needed to get a project started is generally referred to as the initial outlay. It includes all cash outflows:

A stand-alone capital project has the following projected cash flows: Year 0 1 2 3 Cash flow (\ 4,000) \ 1,500 \1 ,200 \ 2,395 If the firm's cost of capital is 14%, which of the following statements is true?

Capital projects are said to be mutually exclusive when:

Sigma is thinking about purchasing a new clam digger for $14,000. The expected net cash flows resulting from the digger are $9,000 in year 1, $7,000 in year 2, $5,000 in year 3, and $3,000 in year 4. Should Sigma purchase this digger if its cost of capital is 12 percent?

The projected cash flows for a project are: If the firm's cost of capital is 12%, what are the project's net present value and internal rate of return?

A firm's cost of capital is:

The net present value (NPV) method assumes that cash flows are reinvested at the:

A project's ____ is the sum of the present values of all cash inflows and outflows discounted at the cost of capital.

The future cash flows of a stand-alone capital project follow: Year 0 1 2 3 Cash flow (\ 5,000) \ 2,000 \ 2,000 \ 2,000 With the project's approximate IRR?

One weakness of the internal rate of return approach is that:

A project requires an initial outlay of $100,000, and is expected to generate annual net cash inflows of $28,000 for the next 5 years. Determine the payback period for the project.

Capital rationing may involve:

Although the NPV method is technically superior, the IRR method is used more frequently.

In addition to justifying how capital dollars are spent, capital budgeting provides a basis for choosing among alternative capital projects.

Foundations

Financial Background: a Review of Accounting, Financial Statements, and Taxes

Cash Flows and Financial Analysis

Financial Planning

The Financial System, Corporate Governance, and Interest

Time Value of Money

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

Risk and Return

Cash Flow Estimation

Risk Topics and Real Options in Capital Budgeting

Cost of Capital

Capital Structure and Leverage

Dividends

The Management of Working Capital Multiple Choice Questions

The Management of Working Capital

Corporate Restructuring

International Finance

Filters