Deck 7: Project Evaluation and International Trade Theories

Question 1

Why are projects with negative net present values (NPVs) unacceptable to a firm?

A)Returns lower than the cost of capital result in firm failure.
B)Returns with negative NPVs cause an equal profit ratio.
C)Returns with negative NPVs are acceptable to a firm
D)Returns lower than the cost of capital result in higher profit ratios

Answer 1

Returns lower than the cost of capital result in firm failure.

Question 2

The Internal Rate of Return is defined as

A)the discount rate which causes the payback to equal one year.
B)the discount rate which causes the NPV to equal zero.
C)the ROE when the NPV equals 0.
D)the ROE associated with project maximization

Answer 2

the discount rate which causes the NPV to equal zero.

Question 3

Each of the following techniques use discounted cash flows to incorporate the time value of money into their analysis except

A)payback method
B)internal rate of return (IRR
C)net present value (NPV
D)modified internal rate of return

Answer 3

payback method

Question 4

A manager can presume that the project will enhance shareholder wealth only if its NPV based on the risk adjusted rate is

A)equal
B)zero.
C)negative.
D)positive.

Question 5

The higher the interest rate

A)The more valuable revenue today is in comparison with revenue in the future.
B)The less valuable revenue today is in comparison with revenue in the future
C)The less costs today should be considered in capital budgeting
D)The less concerned you should be about the timing of a stream of revenue.

Question 6

The net present value

A)Is calculated by discounting all cash flows to present value and subtracting outflows from inflows
B)Calculates the rate of return which leaves you indifferent between undertaking the project, and not undertaking the project.
C)Leads to the same decisions as the use of the payback peri

Question 7

When using the net present value and the internal rate of return to evaluate capital projects:

A)The IRR is preferred because it more closely reflects the firm's goal of maximization of shareholder wealth.
B)Both will lead to the same decision if projects are mutually exclusive.
C)The two techniques may give different answers if the initial costs of the projects differ.
D)Both assume that the firm can reinvest earnings at the same rate.

Question 8

If the internal rate of return (r) is less than the cost of capital,the project should be

A)accepted
B)rejected
C)neither accept nor reject
D)none of the above

Question 9

The basis of trade between countries lies in the

A)Difference in monetary standard
B)Difference in political system
C)Difference in resource endowment
D)None of the above

Question 10

One similarity between international trade and inter-regional trade is that in general both must overcome

A)The difference in language
B)Tariffs
C)Distance or space
D)The difference in currencies

Question 11

The basis of trade between countries lies in the

A)The difference in factor endowment
B)The difference in money standard
C)Difference in political system
D)All of the above

Question 12

The absolute advantage theory of international trade is associated with

A)David Ricardo
B)Adam Smith
C)Samuelson
D)Heckscher-Ohlin

Question 13

Trade between nations occur due to

A)Difference in monetary
B)Difference in resource endowment
C)Difference in political status
D)Difference in population

Question 14

Adam Smith propounded the theory of

A)Comparative cost
B)Opportunity cost
C)Absolute advantage in international trade
D)None of the above

Question 15

David Ricardo propounded theory of

A)Law of reciprocal demand
B)Absolute theory of international trade
C)Comparative theory of international trade
D)None of the above

Question 16

In Heckscher-Ohlin model, factor abundance have been defined in two terms. Those are

A)Price and location criteria
B)Physical and location criteria
C)Price and physical criteria
D)None of the above

Question 17

Trade among different regions within the same country is known as

A)International trade
B)Interregional trade
C)Bilateral trade
D)Trilateral trade

Question 18

Heckscher-Ohlin theory of international trade is based on

A)Factor price equalization
B)Absolute advantage
C)Factor endowment differentials
D)Labour productivity

Question 19

The main objective of international trade is

A)To maximize production
B)To remove political bondage
C)To establish world bank
D)To remove poverty

Question 20

Import quota implies

A)Physical limitation of quantities of goods traded to other countries
B)Physical limitation of quantities of goods traded from other countries
C)A duty imposed by the government upon the goods traded
D)All of the above

Question 21

According to Heckscher-Ohlin theory as a result of international trade, the difference in factor price between nations

A)diminishes
B)increases
C)is constant
D)All of the above

Question 22

The imposition of an import tariff by a nation usually

A)improves the nation's terms of trade and increases the volume of trade
B)worsens the nation's terms of trade but increases the volume of trade
C)improves the nation's terms of trade but reduces the volume of trade
D)None of the above