Question 1

The relationship between NPV and IRR is such that :

Accepted Answer

A)  both approaches always provide the same ranking of alternatives 
B)  the IRR of a project is equal to the firm's cost of capital when the NPV of a project is $0 
C)  if the NPV of a project is negative,then the IRR must be greater than the cost of capital 
D)  all of the above 
E)  none of the above 
A)  both approaches always provide the same ranking of alternatives 
B)  the IRR of a project is equal to the firm's cost of capital when the NPV of a project is $0 
C)  if the NPV of a project is negative,then the IRR must be greater than the cost of capital 
D)  all of the above 
E)  none of the above B

Question 2

In cost-effectiveness analysis,constant cost studies:

Accepted Answer

A)  are rarely used 
B)  attempt to specify the output which may be achieved from a number of alternative programs,assuming all are funded at the same level 
C)  are useless because they fail to adequately evaluate program benefits 
D)  try to find the least expensive way of achieving a certain objective 
E)  none of the above 
A)  are rarely used 
B)  attempt to specify the output which may be achieved from a number of alternative programs,assuming all are funded at the same level 
C)  are useless because they fail to adequately evaluate program benefits 
D)  try to find the least expensive way of achieving a certain objective 
E)  none of the above B

Question 3

The ____ method assumes that the cash flows over the life of the project are reinvested at the ____.

Accepted Answer

A)  net present value; computed internal rate of return 
B)  internal rate of return; firm's cost of capital 
C)  net present value; firm's cost of capital 
D)  net present value; risk-free rate of return 
E)  none of the above 
A)  net present value; computed internal rate of return 
B)  internal rate of return; firm's cost of capital 
C)  net present value; firm's cost of capital 
D)  net present value; risk-free rate of return 
E)  none of the above C

Question 4

Capital expenditures:

Accepted Answer

A)  are easily reversible 
B)  are forms of operating expenditures 
C)  Affect long-run future profitability 
D)  Involve only money,not machinery 
E)  none of the above 
A)  are easily reversible 
B)  are forms of operating expenditures 
C)  Affect long-run future profitability 
D)  Involve only money,not machinery 
E)  none of the above

Question 5

The discount rate utilized in public sector budgeting performs the functions of:

Accepted Answer

A)  allocating funds between the public and private sectors 
B)  allocating funds between present consumption and investment (i.e.,future consumption) 
C)  allocating funds between debt and equity securities 
D)  a and b only 
E)  none of the above 
A)  allocating funds between the public and private sectors 
B)  allocating funds between present consumption and investment (i.e.,future consumption) 
C)  allocating funds between debt and equity securities 
D)  a and b only 
E)  none of the above

Question 6

Which of the following should not be counted in a cost-benefit analysis?

Accepted Answer

A)  direct benefits and costs 
B)  real secondary benefits 
C)  technological secondary costs 
D)  pecuniary benefits 
E)  intangibles 
A)  direct benefits and costs 
B)  real secondary benefits 
C)  technological secondary costs 
D)  pecuniary benefits 
E)  intangibles

Question 7

​The cost of capital is:

Accepted Answer

A)  ​concerned with what a firm has to pay for the capital 
B)  ​the rate of return required by investors 
C)  ​determined in the capital markets 
D)  ​all of the above 
E)  ​b and c only 
A)  ​concerned with what a firm has to pay for the capital 
B)  ​the rate of return required by investors 
C)  ​determined in the capital markets 
D)  ​all of the above 
E)  ​b and c only

Question 8

In cost-benefit analysis,intangibles include such factors as:

Accepted Answer

A)  quality of life considerations 
B)  changes in land values resulting from a project 
C)  aesthetic contributions 
D)  a and b only 
E)  a and c only 
A)  quality of life considerations 
B)  changes in land values resulting from a project 
C)  aesthetic contributions 
D)  a and b only 
E)  a and c only

Question 9

The Ministry of Recreation has decided to consider a proposal to build a new regional park.A piece of land is available which can be purchased,after condemnation proceedings,for $1,000,000.A private developer has offered the owner of the land $2 million.The value of direct recreational benefits from the park is estimated at $175,000 per year for 25 years.In addition,indirect benefits of $12,500 per year for 25 years have been projected.Increased values in land surrounding the project will provide immediate,one-time pecuniary benefits to the land-owners of $1,000,000.
The direct cost to operate and maintain the park is estimated at $50,000 per year.The Ministry believes a 10% discount rate is appropriate to evaluate projects of this sort.Should the park be built? Justify your answer using cost benefit analysis.

Accepted Answer

@#IMG-DLM& With such a large n

Question 10

If the acceptance of Project A makes it impossible to accept Project B,these projects are:

Accepted Answer

A)  contingent projects 
B)  complementary projects 
C)  mutually inclusive projects 
D)  mutually exclusive projects 
E)  none of the above 
A)  contingent projects 
B)  complementary projects 
C)  mutually inclusive projects 
D)  mutually exclusive projects 
E)  none of the above

Question 11

The production superintendent of the Holloway Company has proposed that the firm purchase a new $40,000 grinding machine for use in the plant.The machine is expected to generate $10,000 per year in pre-tax cash savings (labor and spoilage)for the next 10 years.At the end of 10 years the salvage value of the machine is estimated to be $5,000.Holloway uses straight-line depreciation and its marginal income tax rate is 40 percent.The firm's cost of capital is 12 percent. (a) What are the net cash inflows after depreciation and taxes for the machine in years 1-10?
(b) What is the net present value for the machine?
(c) What is the internal rate of return for the machine?
(d) Would you recommend purchasing the machine? Why or why not?

Accepted Answer

The answer of The production superintendent of the Holloway Company...

Question 12

The decision by the Municipal Transit Authority to either refurbish existing buses,buy new large buses,or to supplement the existing fleet with mini-buses is an example of:

Accepted Answer

A)  independent projects 
B)  mutually exclusive projects 
C)  contingent projects 
D)  separable projects 
E)  none of the above 
A)  independent projects 
B)  mutually exclusive projects 
C)  contingent projects 
D)  separable projects 
E)  none of the above

Question 13

Any current outlay that is expected to yield a flow of benefits beyond one year in the future is:

Accepted Answer

A)  a capital gain 
B)  a wealth maximizing factor 
C)  a capital expenditure 
D)  a cost of capital 
E)  a dividend reinvestment 
A)  a capital gain 
B)  a wealth maximizing factor 
C)  a capital expenditure 
D)  a cost of capital 
E)  a dividend reinvestment

Question 14

Which of the following is (are)a guideline(s)to be used in the estimation of cash flows?

Accepted Answer

A)  cash flows should be measured on an incremental basis 
B)  cash flows should be measured on an after-tax basis 
C)  all the indirect effects of the project should be included 
D)  all of the above 
E)  none of the above 
A)  cash flows should be measured on an incremental basis 
B)  cash flows should be measured on an after-tax basis 
C)  all the indirect effects of the project should be included 
D)  all of the above 
E)  none of the above

Question 15

The capital structure of Wildcat Wells,an independent petroleum exploration and drilling company,consists of 40 percent debt and 60 percent equity capital.Debt capital consists of a bond (which matures in 10 years)issued five years ago at an interest rate of 10 percent.Since then market interest rates have risen substantially.The firm has been advised by its investment banker that additional debt financing (bonds)could be obtained at a rate of 12 percent.In the last six years of operations,Wildcat Wells has averaged a 12 percent compound rate of growth in earnings and dividends.This rate is expected to continue for the foreseeable future.Next year's dividend is projected to be $.75 per share.The firm's stock is currently selling for $25 per share.Wildcat Wells has a 40 percent marginal income tax rate. (a) What is the firm's after-tax cost of debt financing?
(b) What is the firm's after-tax cost of internal equity capital?
(c) Assuming that Wildcat Wells plans to maintain its present capital structure, what is the firm's weighted cost of capital?

Accepted Answer

(a) Cost of debt capital
\[\begin{aligne

Question 16

Which of the following items is (are)not considered as part of the net investment calculation?

Accepted Answer

A)  installation and shipping charges 
B)  acquisition cost of new asset 
C)  salvage value of old equipment that is being replaced 
D)  first year's net cash flow 
E)  c and d 
A)  installation and shipping charges 
B)  acquisition cost of new asset 
C)  salvage value of old equipment that is being replaced 
D)  first year's net cash flow 
E)  c and d

Question 17

In order to help assure that all relevant factors will be considered,the capital-expenditure selection process should include the following steps except:

Accepted Answer

A)  generating alternative capital-investment project proposals 
B)  estimating cash flows for the project proposals 
C)  reviewing the investment projects after they have been implemented 
D)  allocate manpower to the various divisions within the firm 
E)  a and d 
A)  generating alternative capital-investment project proposals 
B)  estimating cash flows for the project proposals 
C)  reviewing the investment projects after they have been implemented 
D)  allocate manpower to the various divisions within the firm 
E)  a and d

Question 18

The Jackson Company has the following capital expenditure projects available for possible investment next year: $$\begin{array} { c c c } 
\text { Project } & \begin{array} { c } 
\text { Investment } \
\text { (Million) }
\end{array} & \begin{array} { c } 
\text { Internal } \
\text { Rate of Return }
\end{array} \\hline
\mathrm{A} & \$ 10 & 22 \% \
\mathrm{~B} & 25 & 14 \
\mathrm{C} & 20 & 18 \
\mathrm{D} & 40 & 12 \
\mathrm{E} & 15 & 10 \
\mathrm{~F} & 10 & 13 \
\mathrm{G} & 50 & 15 \
\mathrm{H} & 30 & 11
\end{array}$$ The company has developed the following costs of various increments of capital needed to finance its capital budget for next year: $\begin{array}{cc}
\begin{array}{c}
\text { Amount of }\
\text { Capital Raised } \
\text { (Million) }
\end{array} & \begin{array}{c}
\text { Cost of } \
\text { Capital }
\end{array} \
\hline & \
\text { Up to } \$ 50 & 11.0 \
\$ 50-\$ 125 & 12.5 \
\text { Over } \$ 125 & 14.5
\end{array}$
 Determine the optimal capital budget for the company.

Accepted Answer

Investment opportunity schedule \[\begin

Question 19

The expected rate of return from a share of stock consists of:

Accepted Answer

A)  a dividend return 
B)  capital appreciation (or depreciation) 
C)  interest 
D)  a and b only 
E)  a,b,and c 
A)  a dividend return 
B)  capital appreciation (or depreciation) 
C)  interest 
D)  a and b only 
E)  a,b,and c

Question 20

All of the following except ____ are shortcomings of cost-benefit analysis.

Accepted Answer

A)  difficulty in measuring third-party costs 
B)  difficulty in measuring third-party benefits 
C)  failure to consider the time value of benefits and costs 
D)  difficulty of accounting for program interactions 
E)  a and b 
A)  difficulty in measuring third-party costs 
B)  difficulty in measuring third-party benefits 
C)  failure to consider the time value of benefits and costs 
D)  difficulty of accounting for program interactions 
E)  a and b

The relationship between NPV and IRR is such that :

In cost-effectiveness analysis,constant cost studies:

The method assumes that the cash flows over the life of the project are reinvested at the .

Capital expenditures:

The discount rate utilized in public sector budgeting performs the functions of:

Which of the following should not be counted in a cost-benefit analysis?

The cost of capital is:

In cost-benefit analysis,intangibles include such factors as:

If the acceptance of Project A makes it impossible to accept Project B,these projects are:

The decision by the Municipal Transit Authority to either refurbish existing buses,buy new large buses,or to supplement the existing fleet with mini-buses is an example of:

Any current outlay that is expected to yield a flow of benefits beyond one year in the future is:

Which of the following is (are)a guideline(s)to be used in the estimation of cash flows?

Which of the following items is (are)not considered as part of the net investment calculation?

In order to help assure that all relevant factors will be considered,the capital-expenditure selection process should include the following steps except:

The expected rate of return from a share of stock consists of:

All of the following except ____ are shortcomings of cost-benefit analysis.

Introduction and Goals of the Firm

Fundamental Economic Concepts

Demand Analysis

Estimating Demand

Business and Economic Forecasting

Managing in the Global Economy

Production Economics

Cost Analysis

Applications of Cost Theory

Prices,output,and Strategy: Pure and Monopolistic Competition

Price and Output Determination: Monopoly and Dominant Firms

Price and Output Determination: Oligopoly

Best-Practice Tactics: Game Theory

Pricing Techniques and Analysis

Contracting,governance,and Organizational Form

Government Regulation

Filters

Exam 17: Long-Term Investment Analysis

The relationship between NPV and IRR is such that :

In cost-effectiveness analysis,constant cost studies:

The ____ method assumes that the cash flows over the life of the project are reinvested at the ____.

Capital expenditures:

The discount rate utilized in public sector budgeting performs the functions of:

Which of the following should not be counted in a cost-benefit analysis?

​The cost of capital is:

In cost-benefit analysis,intangibles include such factors as:

If the acceptance of Project A makes it impossible to accept Project B,these projects are:

The decision by the Municipal Transit Authority to either refurbish existing buses,buy new large buses,or to supplement the existing fleet with mini-buses is an example of:

Any current outlay that is expected to yield a flow of benefits beyond one year in the future is:

Which of the following is (are)a guideline(s)to be used in the estimation of cash flows?

Which of the following items is (are)not considered as part of the net investment calculation?

In order to help assure that all relevant factors will be considered,the capital-expenditure selection process should include the following steps except:

The expected rate of return from a share of stock consists of:

All of the following except ____ are shortcomings of cost-benefit analysis.

Introduction and Goals of the Firm

Fundamental Economic Concepts

Demand Analysis

Estimating Demand

Business and Economic Forecasting

Managing in the Global Economy

Production Economics

Cost Analysis

Applications of Cost Theory

Prices,output,and Strategy: Pure and Monopolistic Competition

Price and Output Determination: Monopoly and Dominant Firms

Price and Output Determination: Oligopoly

Best-Practice Tactics: Game Theory

Pricing Techniques and Analysis

Contracting,governance,and Organizational Form

Government Regulation

Filters

The method assumes that the cash flows over the life of the project are reinvested at the .

The cost of capital is: