1 10 Which of the following statements regarding capital budgeting is MOST accurate? A. When analyzing two mutually exclusive projects, the IRR method will produce the same decision that is obtained from evaluating projects under the NPV method. B A project that is expected to generate a negative net present value (NPV) will produce an internal rate of return (IRR) that is greater than the cost of capital required to justify the investment. The profitability Index (PI) is a better method for ranking projects than the average accounting rate of return (AAR) because Pluses discounted cash flows, while AAR does not use cash flows Glen Mlyashiro, CFA, analyzes corporate governance issues for the research department of his midsize buy-side firm. Which of the following practices conflicts with the Board's ability to act in the best long-term interests of shareowners? 11 A B . Independent board members have no allegiance to firm management. Board members require executive management approval prior to hiring consultants. The independent board members are selected from the national business community rather than locally. 12 An analyst is concerned with the marginal cost of capital because: Firms use it to describe internal rate of return for capital budgeting decisions. The cash flows of the net present value model depend directly on the marginal cost of capital. c A company's marginal cost of capital may increase during the process of raising additional capital. A company looking to improve their corporate governance system is most likely to enact policies that will ensure . B 13. 14 A Proposed changes to the governance of financial activities are communicated to shareowners. B. The Board acts in the best interests of shareowners and executive management, The degree of Board independence is reflective of management needs ABC Industries has a capital structure of 60% debt and 40% equity. The firm faces a marginal tax rate of 40%. ABC is planning to diversify its operations by venturing into Mexico. ABC's management would like to take a conservative approach of 30% debt and 70% equity to finance this diversification effort. ABC has identified a comparable firm with a capital structure of 55% debt and 45% equity. The comparable firm has a beta of 1.6 and a tax rate of 38%. Based on the scenario above, what is the levered beta for ABC Industries-Mexico? A 1.14 1.36 . 1.58 15 Which of the following groups have the greatest likelihood of maintaining shareowner interests? here to search O
