Question
Please help with the attached quiz. Question 1. 1. According to the NPV acceptance criterion, projects: (Points : 1) with a positive NPV should be
Please help with the attached quiz.
Question 1.
1.According to the NPV acceptance criterion, projects: (Points : 1)
with a positive NPV should be accepted, since they are value increasing.
with the highest NPV should be accepted.
with an NPV over $10,000 should be accepted, since value increases less than that are trivial.
are acceptable only if the ratio of benefits to costs is greater than zero.
Question 2.
2.GMX Resources, an independent oil and gas exploration and production company, has a tax rate of 38%. If it purchases $2,000,000 of drilling pipe, what is the after-tax cost of this expenditure? (Points : 1)
$760,000
$1,240,000
$2,000,000
$2,760,000
Question 3.
3.A benefit of debt financing is that: (Points : 1)
not making scheduled debt payments can lead to bankruptcy.
interest paid on debt is tax-deductible.
loans must be repaid.
debt magnifies bad outcomes (i.e., makes earnings more variable).
Question 4.
4.When making investment decisions, we focus on after-tax cash flows because: (Points : 1)
taxes must be paid.
those are the cash flows available to shareholders.
taxes can have a significant effect on profits.
tax rates differ across companies.
Question 5.
5.When determining the cash flows for a proposed investment, we generally ignore overhead. Many overhead costs are fixed and will be paid whether the project is accepted or not, so they are not incremental. Which item on the following list, though similar to overhead, would be included as an incremental cash flow? (Points : 1)
the cost of a new managerial position specifically for a proposed project
the allocation of factory floor space by square feet or square meters utilized by a proposed project
the allocation of time that salaried managers used developing a proposed project
the allocation of headquarters rent or lease expense based on anticipated revenue of a proposed project
Question 6.
6.The payback period has several weaknesses. From the list below, identify the item that is NOT necessarily a weakness of the payback period method. (Points : 1)
There is no theoretically correct way to tie an acceptance criterion to shareholder wealth creation.
It is simple to compute.
It ignores all cash flows after the payback period.
It ignores the time value of money.
have cash flows that increase over time with product market penetration.
Question 7.
7.The internal rate of return is: (Points : 1)
the discount rate at which the NPV is maximized.
the discount rate used by people within the company to evaluate projects.
the rate of return that a project must exceed to be acceptable.
the discount rate that equates the present value of benefits to the present value of costs.
Question 8.
8.All else being equal, as debt replaces equity in a profitable companys capital structure, which of the following occurs? (Points : 1)
Interest expense increases, reducing taxable income and reducing taxes.
Interest expense increases, reducing net income and earnings per share.
Interest expense increases, reducing cash flows available to shareholders.
Interest expense increases, reducing profitability and the wealth of shareholders.
Question 9.
9.Costs associated with bankruptcy include: (Points : 1)
legal fees, managerial time shifted away from value creation, and loss of brand value.
legal fees, additional inventory costs from sales growth, and loss of brand value.
legal fees, managerial time shifted away from value creation, and increased market share.
legal fees, employees leaving the company, and cost savings from lower labor costs.
Question 10.
10.The typical corporate investment requires a large cash outlay followed by several years of cash inflows. To make these cash flows comparable, we do which of the following? (Points : 1)
Adjust both cash outflows and inflows for taxes.
Subtract interest charges to reflect the time value of money.
Adjust both outflows and inflows for the effects of depreciation.
Apply time value of money concepts and compare present values.
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