A. What is one advantage of NPV as a capital budget method?

• a.)
• The NPV does not change regardless of what discount rate is assumed.
• b.)
• It is easy to understand and interpret when making investment choices.
• c.)
• It is particularly helpful for companies that are concerned with their liquidity.
• d.)
• It does not require forecasting, so it provides a more accurate analysis of an investment than other methods.

B. When considering a replacement project, __________ must be included in the cash flow analysis.

• a.)
• unrecoverables
• b.)
• salvage value
• c.)
• sunk costs
• d.)
• depreciation

C. Which of the following is an example of a market risk for a company that manufactures automobiles?

• a.)
• A union strike that halts production
• b.)
• Increasing costs in the supply chain of material, due to rising fuel costs
• c.)
• Rising tariffs that increase the price of automobiles sold overseas, thereby reducing demand
• d.)
• Difficulty attracting workers with the requisite skills to meet production demands

D. Which of the following types of financing is typical for a business in its introduction stage?

• a.)
• Second-round venture capital
• b.)
• Equity from an IPO
• c.)
• Issuing bonds
• d.)
• Bank loans

E. Which of the following is an advantage of venture capital?

• a.)
• Once a company receives venture capital funding, it is free to operate without further interference or scrutiny.
• b.)
• Although venture capital investments are typically high risk, they offer the potential for large returns for investors.
• c.)
• Companies are obligated to repay venture capital funds, but at a much lower interest rate than a typical bank loan.
• d.)
• Venture capital investors are guaranteed a return on their investment, although the return can vary from small to quite large.

F. Determine whether the following statement is true of a capital lease, an operating lease, neither or both.

"A commercial financing agreement in which a company rents an asset like heavy equipment from a lessor."

• a.)
• Both
• b.)
• Neither
• c.)
• Operating lease
• d.)
• Capital lease

G. What type of risk does a securities underwriter assume from the issuer?

• a.)
• The risk that the issuer will decide not to issue an IPO
• b.)
• The risk that the price of the security will be set too low
• c.)
• The risk that the issuer will default on the security
• d.)
• The risk that the security will underperform on the open market

H. Select one reason why a company would want to go public.

• a.)
• To undergo a leveraged buyout
• b.)
• To reduce reporting and registration costs
• c.)
• To have access to a large magnitude of funding
• d.)
• To benefit from investors who have expertise in the industry