Question 1

The use of sensitivity analysis will generally result in

Accepted Answer

A) the calculation of a certainty equivalent NPV. 
B) the calculation of a best case,a base case and a worst case. 
C) the calculation of the coefficient of variation. 
D) the calculation of the probability of the maximum profit. 
A) the calculation of a certainty equivalent NPV. 
B) the calculation of a best case,a base case and a worst case. 
C) the calculation of the coefficient of variation. 
D) the calculation of the probability of the maximum profit.

Question 2

The difference between sensitivity analysis and scenario analysis is

Accepted Answer

A) sensitivity analysis is a method for evaluating risk while scenario analysis is not. 
B) sensitivity analysis is based on regression analysis while scenario analysis is not. 
C) sensitivity analysis examines the impact on the overall results of a change in one variable while scenario analysis examines the impacts on overall results of changes in several variables at the same time. 
D) None of the above 
A) sensitivity analysis is a method for evaluating risk while scenario analysis is not. 
B) sensitivity analysis is based on regression analysis while scenario analysis is not. 
C) sensitivity analysis examines the impact on the overall results of a change in one variable while scenario analysis examines the impacts on overall results of changes in several variables at the same time. 
D) None of the above

Question 3

If,at the end of the project life,a piece of equipment having a book value of $4,000 is expected to bring $3,000 upon resale,and the income tax rate is 40%,how much will be the cash flow?

Accepted Answer

A) $2,800 
B) $3,000 
C) $3,400 
D) $4,000 
A) $2,800 
B) $3,000 
C) $3,400 
D) $4,000

Question 4

You deposit $10,000 in a savings account today.If the interest rate is 3%,what is the value in 20 years?

Accepted Answer

FV = PV(1

Question 5

Usually,the cost of capital for newly issued stock is ________ the cost of retained earnings.

Accepted Answer

A) lower than 
B) higher than 
C) same as 
D) either higher or lower than 
A) lower than 
B) higher than 
C) same as 
D) either higher or lower than

Question 6

An increase in net working capital required at the beginning of an expansion project must be considered to be

Accepted Answer

A) a cash inflow. 
B) a reallocation of assets. 
C) a cash outflow. 
D) None of the above 
A) a cash inflow. 
B) a reallocation of assets. 
C) a cash outflow. 
D) None of the above

Question 7

The cost of capital is best described as the

Accepted Answer

A) opportunity cost of financing a capital outlay. 
B) funds that must be acquired to finance a capital outlay. 
C) decrease in stockholder equity due to a capital outlay. 
D) All of the above 
A) opportunity cost of financing a capital outlay. 
B) funds that must be acquired to finance a capital outlay. 
C) decrease in stockholder equity due to a capital outlay. 
D) All of the above

Question 8

The term capital budgeting refers to decisions

Accepted Answer

A) which are made in the short run. 
B) which concern the spreading of expenditures over a period lasting less than one year. 
C) where expenditures and receipts for a particular undertaking will continue over a relatively long period of time. 
D) where a receipt of cash will occur simultaneously with an outflow of cash. 
A) which are made in the short run. 
B) which concern the spreading of expenditures over a period lasting less than one year. 
C) where expenditures and receipts for a particular undertaking will continue over a relatively long period of time. 
D) where a receipt of cash will occur simultaneously with an outflow of cash.

Question 9

The use of real options in capital budgeting

Accepted Answer

A) may raise the NPV of a capital project. 
B) makes the analysis of the project considerably easier. 
C) allows management to make decisions more quickly. 
D) eliminates the need for calculating the project's risk adjusted discount rate. 
A) may raise the NPV of a capital project. 
B) makes the analysis of the project considerably easier. 
C) allows management to make decisions more quickly. 
D) eliminates the need for calculating the project's risk adjusted discount rate.

Question 10

Net present value and internal rate of return capital budgeting decisions can differ because

Accepted Answer

A) the initial costs of the capital outlays differ. 
B) the cash flow streams differ. 
C) the discount rates differ for different time periods. 
D) All of the above 
A) the initial costs of the capital outlays differ. 
B) the cash flow streams differ. 
C) the discount rates differ for different time periods. 
D) All of the above

Question 11

When future events cannot be assigned probabilities,we are talking about

Accepted Answer

A) risk. 
B) uncertainty. 
C) a clouded future. 
D) financial risk. 
A) risk. 
B) uncertainty. 
C) a clouded future. 
D) financial risk.

Question 12

The internal rate of return of a project can be found by

Accepted Answer

A) discounting all cash flows at the cost of capital. 
B) averaging all cash inflows,and calculating the interest rate,which will make them equal to the average investment. 
C) calculating the interest rate,which will equate the present value of all cash inflows to the present value of all cash outflows. 
D) None of the above 
A) discounting all cash flows at the cost of capital. 
B) averaging all cash inflows,and calculating the interest rate,which will make them equal to the average investment. 
C) calculating the interest rate,which will equate the present value of all cash inflows to the present value of all cash outflows. 
D) None of the above

Question 13

When analyzing a capital budgeting project,the analyst must include in his calculation all of the following except

Accepted Answer

A) all revenues and costs in terms of cash flows. 
B) only those cash flows that will change if the proposal is accepted (i.e.,incremental cash flows). 
C) interest payments on debt financing connected with the project. 
D) any effect (impact)the acceptance of the project under consideration will have on other projects now in operation. 
A) all revenues and costs in terms of cash flows. 
B) only those cash flows that will change if the proposal is accepted (i.e.,incremental cash flows). 
C) interest payments on debt financing connected with the project. 
D) any effect (impact)the acceptance of the project under consideration will have on other projects now in operation.

Question 14

What additional sources of risk come from international investments?

Accepted Answer

Exchange rate risk,a

Question 15

The Widget Company has estimated the following revenue possibilities for the year:
$\begin{array} { l l } 
\text { Sales } & \text { Probability } \
100 & 0.15 \
150 & 0.20 \
220 & 0.30 \
290 & 0.20 \
310 & 0.15
\end{array}$
a.Find expected revenue.
b.Find the standard deviation.
c.Find the coefficient of variation.

Accepted Answer

a.Expected revenue i

Question 16

Describe the Capital Asset Pricing Model (CAPM)and how it is used in capital budgeting decisions.

Accepted Answer

CAPM is a procedure for adjusting a meas

Question 17

The XYZ Company has estimated expected cash flows for 1996 to be as follows:
 $$\begin{array} { | c | r | } 
\hline \text { Probability } & \text { Cash flow } \
\hline .10 & \$ 120,000 \
\hline .15 & 140,000 \
\hline .50 & 150,000 \
\hline .15 & 180,000 \
\hline .10 & 210,000 \
\hline
\end{array}$$ Calculate:
a.expected value
b.standard deviation
c.coefficient of variation
d.the probability that the cash flow will be less than $100,000

Accepted Answer

a.$156,000 b.$23,749

Question 18

Inc.'s stock is currently $50.The last dividend that they paid was $1.If dividends are expected to increase at a 10% annual rate,what is the firm's equity cost of capital?

Accepted Answer

k_e= D₁/P₀ + g

Question 19

An advantage of the decision tree is that

Accepted Answer

A) it eliminates the need for calculating the cost of capital. 
B) it eliminates the need for calculating probabilities. 
C) it causes the analyst to consider important events that may occur in the course of the project,and decisions and actions that may have to be undertaken. 
D) All of the above 
A) it eliminates the need for calculating the cost of capital. 
B) it eliminates the need for calculating probabilities. 
C) it causes the analyst to consider important events that may occur in the course of the project,and decisions and actions that may have to be undertaken. 
D) All of the above

Question 20

Simulation analysis

Accepted Answer

A) permits the calculation of expected value and standard deviation. 
B) does not permit the calculation of expected value and standard deviation. 
C) is too complex to ever be used in actual business situations. 
D) does not consider probabilities. 
A) permits the calculation of expected value and standard deviation. 
B) does not permit the calculation of expected value and standard deviation. 
C) is too complex to ever be used in actual business situations. 
D) does not consider probabilities.

The use of sensitivity analysis will generally result in

The difference between sensitivity analysis and scenario analysis is

If,at the end of the project life,a piece of equipment having a book value of $4,000 is expected to bring $3,000 upon resale,and the income tax rate is 40%,how much will be the cash flow?

You deposit $10,000 in a savings account today.If the interest rate is 3%,what is the value in 20 years?

Usually,the cost of capital for newly issued stock is ________ the cost of retained earnings.

An increase in net working capital required at the beginning of an expansion project must be considered to be

The cost of capital is best described as the

The term capital budgeting refers to decisions

The use of real options in capital budgeting

Net present value and internal rate of return capital budgeting decisions can differ because

When future events cannot be assigned probabilities,we are talking about

The internal rate of return of a project can be found by

When analyzing a capital budgeting project,the analyst must include in his calculation all of the following except

What additional sources of risk come from international investments?

The Widget Company has estimated the following revenue possibilities for the year: Sales Probability 100 0.15 150 0.20 220 0.30 290 0.20 310 0.15 a.Find expected revenue. b.Find the standard deviation. c.Find the coefficient of variation.

Describe the Capital Asset Pricing Model (CAPM)and how it is used in capital budgeting decisions.

The XYZ Company has estimated expected cash flows for 1996 to be as follows: Probability Cash flow .10 \ 120,000 .15 140,000 .50 150,000 .15 180,000 .10 210,000 Calculate: a.expected value b.standard deviation c.coefficient of variation d.the probability that the cash flow will be less than $100,000

Inc.'s stock is currently $50.The last dividend that they paid was $1.If dividends are expected to increase at a 10% annual rate,what is the firm's equity cost of capital?

An advantage of the decision tree is that

Simulation analysis

Introduction

The Firm and Its Goals

Supply and Demand

Demand Elasticity

Demand Estimation and Forecasting Appendices 5A and 5B

The Theory and Estimation of Production Appendices 6A,6B,and 6C

The Theory and Estimation of Cost Appendices 7A,7B,and 7C

Pricing and Output Decisions: Perfect Competition and Monopoly Appendices 8A and 8B

Pricing and Output Decisions: Monopolistic Competition and Oligopoly

Special Pricing Practices

Game Theory and Asymmetric Information

The Multinational Corporation in a Global Setting

Government and Industry: Challenges and Opportunities for Todays Manager

The Global Soft Drink Industry

Filters

Exam 12: Capital Budgeting and Risk

The use of sensitivity analysis will generally result in

The difference between sensitivity analysis and scenario analysis is

If,at the end of the project life,a piece of equipment having a book value of $4,000 is expected to bring $3,000 upon resale,and the income tax rate is 40%,how much will be the cash flow?

You deposit $10,000 in a savings account today.If the interest rate is 3%,what is the value in 20 years?

Usually,the cost of capital for newly issued stock is ________ the cost of retained earnings.

An increase in net working capital required at the beginning of an expansion project must be considered to be

The cost of capital is best described as the

The term capital budgeting refers to decisions

The use of real options in capital budgeting

Net present value and internal rate of return capital budgeting decisions can differ because

When future events cannot be assigned probabilities,we are talking about

The internal rate of return of a project can be found by

When analyzing a capital budgeting project,the analyst must include in his calculation all of the following except

What additional sources of risk come from international investments?

The Widget Company has estimated the following revenue possibilities for the year: Sales Probability 100 0.15 150 0.20 220 0.30 290 0.20 310 0.15 a.Find expected revenue. b.Find the standard deviation. c.Find the coefficient of variation.

Describe the Capital Asset Pricing Model (CAPM)and how it is used in capital budgeting decisions.

Inc.'s stock is currently $50.The last dividend that they paid was $1.If dividends are expected to increase at a 10% annual rate,what is the firm's equity cost of capital?

An advantage of the decision tree is that

Simulation analysis

Introduction

The Firm and Its Goals

Supply and Demand

Demand Elasticity

Demand Estimation and Forecasting Appendices 5A and 5B

The Theory and Estimation of Production Appendices 6A,6B,and 6C

The Theory and Estimation of Cost Appendices 7A,7B,and 7C

Pricing and Output Decisions: Perfect Competition and Monopoly Appendices 8A and 8B

Pricing and Output Decisions: Monopolistic Competition and Oligopoly

Special Pricing Practices

Game Theory and Asymmetric Information

The Multinational Corporation in a Global Setting

Government and Industry: Challenges and Opportunities for Todays Manager

The Global Soft Drink Industry

Filters