TRUE OR FALSE QUESTIONS

A. Stocks that don't pay dividends have value based on the expectation that dividends will eventually will be paid.

B. Companies that anticipate high growth in their early years are likely to retain earnings to finance that growth rather than pay dividends and then borrow or issue stock to support the growth.

C. The technical analyst forecasts a company's cash flows to arrive at value. The fundamental analyst relies on past price patterns repeating themselves.

D. If a company truly never paid a dividend, there would be no way for the investing community as a whole to ever get a return on its investment. It would therefore not make sense to invest in the firm's stock.

E. A stock's intrinsic value is based on assumptions about future cash flows made from technical analysis of the firm and the industry.

F. Fundamental analysis attempts to develop an intrinsic value for a stock that is then compared with its current price.

A. The cost of capital is a single rate that reflects the average return paid to investors who provide the firm's capital.

B. An advantage of the less sophisticated payback method is that it is quick and easy to apply.

C. Projects with negative NPVs contribute only minimal positive amounts to shareholder wealth.

D. The NPV decision rules are based on the following statements that follow from the definition of NPV.

NPV > 0 adds shareholder wealth

NPV = 0 no change in shareholder wealth

NPV < 0 reduces shareholder wealth

E. The future cash flows of a stand-alone project are as follows:

Year	0	1	2	3	4
Cash flow	($220,000)	$80,000	$95,000	$60,000	$60,000

If the cost of capital is 16%, this project will contribute to shareholder wealth.

F. The mutually exclusive decision rule for the NPV technique is

NPV_B > NPV_A choose project A over B

A. An assumption implicit in the net present value technique is that all cash flows are reinvested at the cost of capital.

B. A project with a negative NPV always has an IRR that's less than the cost of capital.

C. The internal rate of return is analogous to the yield on a bond, because both are rates that equate inflows with outflows on a present value basis.

D. If a project's NPV is greater than zero, its IRR must be equal to the cost of capital.

E. The decision rules for IRR are:

Stand-alone:	IRR > k reject the project
	IRR < k accept the project
Mutually exclusive:	IRRA > IRRB choose project A over project B
	IRRA < IRRB choose project B over project A

F. When the NPV and IRR methods conflict, for the most part, IRR is preferred over NPV.