MULTIPLE CHOICE QUESTIONS Choose the one alternative that best completes the statement or answers the question. Enter your answers on a scantron using #2 pencil. Each question is worth 2 points x 20 questions 40 points total. Use a paper clip to attach your scantron to the finished test. 1) In order to recognize the interrelationship between financing and investments, a firm should use when evaluating capital budgeting projects. a) the least costly source of financing b) the costliest source of financing c) the weighted average cost of all financing sources d) the current opportunity cost 2) Evaluate the following independent projects using a simple payback method, subject to the firm's rule that all capital budgeting projects must have a simple payback period of 3.5 years or less. Annual cash flows for each project are shown below: CF3 14,500 30,000 300,000 CF4 CFO 50,000 -50,000 CF1 14,500 20,000- CF2 14,500 20,000 Fs of Project A, S Fs of Project B, S a) Project A can be accepted because its payback period is less than 3.5 years, but Project B cannot be accepted because its payback period is longer than 3.5 years. b) Project B should be accepted because it offers a $300,000 payoff in year 4. c) Project A should be rejected because it has lower long-run cash flows. d) Both projects can be accepted because both have payback periods less than 3.5 years. Illustration 1