he net present value (NPV) amount represents the amount by which the project is expected to ________ shareholder wealth (assuming positive NPV for this question).
| provide zero change to or decrease |
Flag this Question Question 32pts The objective of a firm's management should be to only undertake the projects that ________ the market value of shareholders' equity.
Flag this Question Question 42pts Net cash inflows from operations can be computed in which of the following ways?
| Cash Flow = Revenues - Cash Expenses - Taxes |
| Cash Flow = Net Income + Noncash Expenses |
| Cash Flow = Revenue - Total Expenses - Taxes + Noncash Expenses |
Flag this Question Question 52pts Which of the following is
nottrue?
| Multiple IRRs for a project may exist when the project's required rate of return is high. |
| IRR implicitly assumes that cash flows can be reinvested at the IRR rate. |
| Ranking projects based on NPV is not always the appropriate way to pick which projects to undertake. |
| When used to compare two projects, ACC assumes that a project with a short live can be repeated at a later date |
Flag this Question Question 62pts Which of the following would not be expected to affect the decision of whether to undertake an investment?
| Sales reductions in other products caused by this investment. |
| Cost of the feasibility study which was conducted for a project. |
Flag this Question Question 72pts The cost of capital does not reflect any market related risk of the project, or beta.
Flag this Question Question 82pts In computing a project's cost of capital the risk to use is:
| the risk of the financing instruments used to fund the project |
| the risk of the project's cash flows |
| a historical risk rate using T-bills |
Flag this Question Question 92pts When a firm has to ration capital, it should:
| Fund the set of projects within the limits of capital that produces the greatest overall net present value. |
| Fund the set of projects within the limits of capital that produces the greatest overall internal rate of return (IRR). |
| Rank the projects based on net present value and fund as many of them in that order as possible. |
| Rank the projects based on internal rate of return (IRR) and fund as many of them in that order as possible. |
Flag this Question Question 102pts If a project requires a $50,000 increase in inventory, this increase in inventory . . .
| represents a cash outflow for the project. |
| represents a cash inflow for the project. |
| represents a cash outflow for the project but must be adjusted for taxes. |
| represents a cash inflow for the project but must be adjusted for taxes. |
| should be ignored in the evaluation of the project. |
Flag this Question Question 112pts The ________ is the rate that prevails in a zero-inflation scenario. The ________ is the rate that one actually observes.
Flag this Question Question 122pts When a project has multiple internal rates of return:
| the analyst should choose the highest rate to compare with the firm's cost of equity |
| the analyst should choose the highest rate to compare with the firm's cost of capital |
| the analyst should choose the rate that seems most "reasonable" given the project's cash flows, to compare with the firm's cost of equity |
| the analyst should compute the project's net present value and accept the project if its NPV is greater than $0. |
Flag this Question Question 132pts Which of the following statements is most correct?
| Sunk costs must be included in the project's cash flow. |
| R&D expenditures cannot be a part of the initial cost of a project. |
| Opportunity costs are sunk costs and therefore should not be included in the cost of the project. |
| Depreciation is not a cash expense. |
| All of the above statements are false. |
Flag this Question Question 142pts Suppose the firm's cost of capital is stated in nominal terms, but the project's cash flows are expressed in real dollars. If a nominal rate is used to discount real cash flows and there is inflation (assume positive inflation), the calculated NPV would .....
| be possibly biased; either upward or downward |
Flag this Question Question 152pts The correct method to handle overhead costs in capital budgeting is to:
| allocate a portion to each project. |
| allocate them to projects with the highest NPVs. |
| ignore all except identifiable incremental amounts. |
| ignore them in all cases. |
Flag this Question Question 162pts Which of the following statements is normally correct for a project with a positive NPV?
| IRR exceeds the cost of capital. |
| Accepting the project has an indeterminate effect on shareholders. |
| The traditional payback period exceeds the life of the project. |
| The present value index equals one. |
Flag this Question Question 172pts Capital budgeting proposals for investment projects should be evaluated as if the project were financed:
| entirely by debt, adjusting for taxes. |
| half by debt and half by equity. |
| with the highest cost source of funds, to be safe. |
| the financing and investment decisions should be viewed separately. |
Flag this Question Question 182pts When projects are mutually exclusive, can be undertaken only once, and capital is unconstrained, selection should be made according to the project with the:
| highest PVI (present value index). |
Flag this Question Question 192pts Which of the following can be deduced about a three-year investment project that has a two year traditional payback period?
| The IRR is greater than the cost of capital. |
| Both 'a' and 'b' can be deduced. |
| Neither 'a' nor 'b' can be deduced. |
Flag this Question Question 202pts If a project has a cost of $50,000 and a present value index of 1.4, then:
| its cash inflows are $70,000. |
| the present value of its cash inflows is $30,000. |
Flag this Question Question 212pts If two projects offer the same, positive NPV, then:
| they also have the same IRR. |
| they have the same traditional payback period. |
| they are mutually exclusive projects. |
| they add the same amount to the value of the firm. |
Flag this Question Question 222pts The likely effect of discounting nominal cash flows with real interest rates (assuming positive NPV) will be to:
| make an investment's NPV appear more attractive. |
| make an investment's NPV appear less attractive. |
| correctly calculate an investment's NPV if inflation is expected. |
| correctly calculate an investment's NPV, regardless of expected inflation. |
Flag this Question Question 232pts Which of the following is representative of how depreciation expense is handled in the face of inflation?
| It increases annually with the rate of inflation. |
| It decreases annually in nominal terms. |
| The depreciable base is not altered by inflation. |
| The real value of the depreciation is fixed. |
Flag this Question Question 242pts When analyzing a capital project, an increase in net working capital associated with the project:
| is not a relevant cash flow. |
| is a relevant cash outflow. |
| is a relevant cash inflow. |
| is a relevant cash outflow that must be adjusted for taxes. |
| is a relevant cash inflow that must be adjusted for taxes. |
