Question 1

The final step in the capital budgeting process is

Accepted Answer

A)  implementation 
B)  selection 
C)  follow-up 
D)  development

Question 2

The payback period concept is best explained by which of the following?

Accepted Answer

A)  marginal cost of capital 
B)  point where initial investment has been returned 
C)  rate where NPV is equal to zero 
D)  accounting rate of return

Question 3

Project budgeting is the process of identifying, evaluating, and implementing a firm's investment opportunities.

Accepted Answer

A) True 
 B)False

Question 4

Opportunity costs reflect the cost of passing up the next best alternative and are irrelevant in capital budgeting analysis.

Accepted Answer

A) True 
 B)False

Question 5

Examples of internal financial data required for project analysis include all of the following except:

Accepted Answer

A)  investment costs 
B)  business cycle stages 
C)  financing costs 
D)  transportation costs

Question 6

The after-tax cash flows without the project are referred to as:

Accepted Answer

A)  the net investment 
B)  incremental cash flows 
C)  the base case 
D)  the starting flow

Question 7

Modern internal rate of return (MIRR) solves some of the problems presented by IRR.

Accepted Answer

A) True 
 B)False

Question 8

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 8%. Based on this information, the NPV of the project is _________ million and the firm should _________ the project.

Accepted Answer

A)  $3.7; accept 
B)  -$3.7, reject 
C)  $159.37, accept 
D)  -$159.37, reject

Question 9

MIRR is a three-step process. Which of the following is not one of those steps.

Accepted Answer

A)  Find the present value (PV) of all cash outflows 
B)  Compute the future value (FV) of each cash inflow 
C)  Compute the present value (PV) of each cash inflow 
D)  Find the discount rate that equates the PV of the outflows and the terminal value

Question 10

With independent projects, NPV and IRR provide identical accept/reject decisions. If, however, you have two mutually exclusive projects to evaluate, the most accurate thing you could say about the eventual results is that:

Accepted Answer

A)  NPV and IRR may give conflicting rankings 
B)  NPV and IRR never give the same rankings 
C)  NPV and IRR always give the same rankings 
D)  IRR is more lenient in accepting

Question 11

The internal rate of return concept is best explained by which of the following?

Accepted Answer

A)  rate where NPV is equal to zero 
B)  point where initial investment has been returned 
C)  marginal cost of capital 
D)  average book value

Question 12

When applied to the analysis of independent projects, NPV and IRR never provide conflicting accept or reject decisions.

Accepted Answer

A) True 
 B)False

Question 13

In a capital budgeting context, a project's required rate of return is called the yield to maturity.

Accepted Answer

A) True 
 B)False

Question 14

In Excel, finding the MIRR ranking for a project is a multi-step process.

Accepted Answer

A) True 
 B)False

Question 15

Nonfinancial information plays no part in capital budgeting.

Accepted Answer

A) True 
 B)False

Question 16

An NPV profile is a table used to select the appropriate discount rate to use in calculating the NPV.

Accepted Answer

A) True 
 B)False

Question 17

All of the following statements are correct except:

Accepted Answer

A)  The NPV and IRR methods will always agree on whether a project enhances or harms shareholder wealth. 
B)  If a project has a positive NPV, its IRR will always be greater than the cost of capital. 
C)  If a project has a positive NPV, its IRR will always be less than the cost of capital. 
D)  There is sometimes a conflict between NPV and IRR in the case of mutually exclusive projects.

Question 18

Capital budgeting is

Accepted Answer

A)  the process of identifying, evaluating, and implementing a firm's investment opportunities. 
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 requirements.

Question 19

The capital-budgeting process starts with which one of the following stages:

Accepted Answer

A)  development 
B)  identification 
C)  implementation 
D)  selection

Question 20

A sunk cost is a project-related expense that is dependent upon whether or not the project is undertaken.

Accepted Answer

A) True 
 B)False

Exam 17: Capital Budgeting Analysis

The final step in the capital budgeting process is

The payback period concept is best explained by which of the following?

Project budgeting is the process of identifying, evaluating, and implementing a firm's investment opportunities.

Opportunity costs reflect the cost of passing up the next best alternative and are irrelevant in capital budgeting analysis.

Examples of internal financial data required for project analysis include all of the following except:

The after-tax cash flows without the project are referred to as:

Modern internal rate of return (MIRR) solves some of the problems presented by IRR.

MIRR is a three-step process. Which of the following is not one of those steps.

With independent projects, NPV and IRR provide identical accept/reject decisions. If, however, you have two mutually exclusive projects to evaluate, the most accurate thing you could say about the eventual results is that:

The internal rate of return concept is best explained by which of the following?

When applied to the analysis of independent projects, NPV and IRR never provide conflicting accept or reject decisions.

In a capital budgeting context, a project's required rate of return is called the yield to maturity.

In Excel, finding the MIRR ranking for a project is a multi-step process.

Nonfinancial information plays no part in capital budgeting.

An NPV profile is a table used to select the appropriate discount rate to use in calculating the NPV.

All of the following statements are correct except:

Capital budgeting is

The capital-budgeting process starts with which one of the following stages:

A sunk cost is a project-related expense that is dependent upon whether or not the project is undertaken.