The IRR is defined as: A. The discount rate that makes the NPV equal to zero B. The difference between the cost of capital and the present value of the cash flows C. The discount rate used in the NPV method D. The discount rate used in the discounted payback period method Which of the following methods of evaluating capital investment projects incorporates the time value of money concept? I. Payback Period, II. Profitability Index, III. Net Present Value (NPV), IV. Internal Rate of Return A. I, II, and III only B. II, III, and IV only C. III and IV only D. I, and IV only The company's cost of capital when debt as well as equity is used for financing is: A. cost of debt B. cost of equity C. the weighted average cost of capital (WACC) D. none of the above Projects have the same function; the acceptance of one __ I the others from consideration. A Capital; eliminates B Independent; does not eliminate C Mutually exclusive; eliminates D Replacement; does not eliminate If a firm has unlimited funds, it is able to accept all independent projects that provide an acceptable return. A. True B. False The IRR rule states that firms should accept any project offering an internal rate of return in excess of its own cost of capital. A. True B. False 7. Using the company cost of capital to evaluate a project is: I. Always correct II Always incorrect III Correct for projects that are about as risky as the average of the firm's other assets A. I only B. II only C. III only D. I and III only 8. One strength of payback period is that it fully accounts for the time value of money. A. True B. False 9. The cost of retained earnings is either very low or close to zero. A. True B. False 10. A tax adjustment must be made in determining the cost of A. long-term debt B. common stock C. preferred stock D. retained earnings Only a firm's permanent financing requirement (and not the seasonal requirement) is financed with in the aggressive funding strategy. A. long-term debt B. T-bills C. retained earnings D. accounts payable The cost of preferred stock is typically higher than the cost of long-term debt (bonds) because the cost of long-term debt (interest) is tax deductible. A. True B. False Since the net proceeds from sale of new common stock will be less than the current market price, the cost of new issues will always be less than the cost of existing issues. A. True B. False 4. Independent projects are those whose cash flows are unrelated ho one another; the acceptance of one does not eliminate the others from further consideration. A. True B. False One weakness of payback period approach is its failure to recognize cash flows that occur after the payback period. A. True B. False The required rate of return for a stock can be decomposed into current yield and capital gains yield. A) True B) False An ADR is a claim issued by a U.S. bank representing ownership of shares of a foreign company's stock held on deposit by the U.S. bank and is issued in dollars to U.S. investors. A) True B) False An important implication of Efficient Market is that investors qhould always try to beat the market (e.g. S&P500 index). A) True B) False