FIN 320-51 Ch. 5 Quiz, FIN 320-51 Ch. 6 Quiz, FIN 320-51 Ch. 7 Quiz, FIN 320-51 Ch 8 Quiz, FIN 320-51 Ch 9 Quiz
Which of the following statements is FALSE? Question content area bottom Part 1 A. Successful young firms often have high initial earnings growth rates. B. According to the constant dividend growth model, the value of the firm depends on the current dividend level, divided by the equity cost of capital plus the grow rate. C. A firm can only pay out its earnings to investors or reinvest their earnings. D. Estimating dividends, especially for the distant future, is difficult.
B. According to the constant dividend growth model, the value of the firm depends on the current dividend level, divided by the equity cost of capital plus the grow rate.
Which of the following statements is FALSE? Question content area bottom Part 1 A. The payback rule is reliable because it considers the time value of money and depends on the cost of capital. B. The payback rule is useful in cases where the cost of making an incorrect decision might not be large enough to justify the time required for calculating the net present value (NPV). C. Fifty percent of firms surveyed reported using the payback rule for making decisions. D. For most investment opportunities, expenses occur initially and cash is received later.
The payback rule is reliable because it considers the time value of money and depends on the cost of capital.
A firm can either pay its earnings to its investors, or it can keep them and reinvest them. Question content area bottom Part 1 True False
True
Bonds with a high risk of default generally offer high yields. Question content area bottom Part 1 True False
True
Firms should use the most accelerated depreciation scheme allowable. Question content area bottom Part 1 True False
True
Interest and other financing−related expenses are excluded when determining a project's unlevered net income. Question content area bottom Part 1 True False
True
Market forces determine interest rates based ultimately on the willingness of individuals, banks, and firms to borrow, save, and lend. True False
True
The Net Present Value rule implies that we should compare a project's net present value (NPV) to zero. Question content area bottom Part 1 True False
True
The payback rule is based on the idea that an opportunity that pays back its initial investment quickly is a worthwhile opportunity. Question content area bottom Part 1 True False
True
When different investment rules give conflicting answers, then decisions should be based on the Net Present Value rule, as it is the most reliable and accurate decision rule. Question content area bottom Part 1 True False
True
When you borrow money, the interest rate on the borrowed money is the price you pay to be able to convert your future loan payments into money today. True False
True
Boston Scientific to Buy Full Control of Sadra Medical Lead Story-Dateline: Olmos, David and Elizabeth Lopatto, "Boston Scientific to Buy Full Control of Sadra Medical," Bloomberg.com, http://www.bloomberg.com/news/2010-11-19/boston-scientific-to-buy-full-control-of-sadra-medical-update3-.htmlopens in a new tab, posted 11/19/2010. Summary: Key Points in the Article Boston Scientific Corporation agreed to terms to acquire full control of Sadra Medical Inc., a manufacturer of implantable heart valves. The deal included a $193 million payment now and "as much as $193" in additional money if certain milestones are achieved. Boston Scientific evaluated other players in the heart valve market but ultimately decided to acquire Sadra because management believes Sadra will emerge with the ?winning technology? in this market. Acquisitions are a part of Boston Scientific's growth strategy during the next few years and the company's management believes it can cut costs and increase Sadra's sales. Boston Scientific intends to continue its strategy of acquisitions to "build a pipeline" of products coming to market. The company is in a good position to make some acquisitions with "$624 million in cash and short-term investments" on September 30 of this year. However, some analysts are skeptical of the strategy and intend to adopt a wait-and-see policy until the company establishes a good track record of making profitable acquistions. Multiple Choice Questions 1. After identifying possible capital budgeting projects the first step in evaluating these projects is to _______ . A. calculate the IRR B. forecast the project's cash flows C. calculate the NPV D. none of these 2. Top management's decision to focus on a specific type of acquisition is one component of a firm's ________. A. none of these B. demise C. net present value D. strategy 3. The best capital budgeting evaluation tool is ________ . A. IRR B. modified IRR C. payback period D. net present value
1. After identifying possible capital budgeting projects the first step in evaluating these projects is to _______ . B. forecast the project's cash flows 2. Top management's decision to focus on a specific type of acquisition is one component of a firm's ________. D. strategy 3. The best capital budgeting evaluation tool is ________ . D. net present value
Deepwater Horizon Rig Disaster Threatens Drilling Source: Lead Story-Dateline: Coy, Peter and Stanley Reed, "Deepwater Horizon Rig Disaster Threatens Drilling," Bloomberg.com, http://www.bloomberg.com/apps/news?pid=20601109&sid=aHElyJ.bKpsw&pos=10#opens in a new tab , posted 5/7/2010. Summary: Key Points in the Article British Petroleum (BP) is an oil exploration and production company that encourages high risk projects with the potential for high return. Last summer the company's exploration and production chief, Andy Inglis, is quoted as saying, "We don't do simple things. We are prepared to work on the frontier and manage the risks." So far that strategy has paid off for BP. Now that strategic decision is being called into question. BP's earnings for the quarter ending March 31, 2010 were $5.6 billion; more than double what they were five years ago. However, a recent deepwater drilling rig accident in the Gulf of Mexico killed eleven employees and has spewed over three million barrels of oil into the ocean with no real end in sight. The company's disaster is threatening one of the most productive fisheries in the world and the fragile Gulf ecosystem. From BP's perspective the disaster may also be threatening the company's future. If the spill is not contained soon it may mark the end of Gulf exploration and drilling. The practice may be deemed too risky, both politically and environmentally. For a company that has staked much of its future on the Gulf, it may also signal the end of BP. Investors are abandoning BP and the company has lost over $30 billion in market capitalization since the disaster. Multiple Choice Questions 1. Higher risk projects should be evaluated using __________ discount rates. A. higher B. lower C. there is no relationship between risk and discount rate D. the same 2. Ultimately concern over BP's ________ is pushing many investors to sell the company's stock. A. future cash flow B. management C. business model D. none of the above 3. The process of investing money for the firm with the expectation of generating positive returns is known as ___________________ . A. capital budgeting B. none of the above C. risk taking D. capital structure
1. Higher risk projects should be evaluated using __________ discount rates. A. higher 2. Ultimately concern over BP's ________ is pushing many investors to sell the company's stock. A. future cash flow 3. The process of investing money for the firm with the expectation of generating positive returns is known as ___________________ . A. capital budgeting
The Myth of Efficiency Source: Hartung, Adam, "The Myth of Efficiency", Forbes.com, http://www.forbes.com/2009/10/16/efficiency-innovation-change-leadership-managing-taylor.html?partner=relatedstoriesboxopens in a new tab, posted 10/16/2009. Hartung maintains that modern managers focus primarily on managing "legacy businesses" and very little on generating new ideas. A recent study points out that "only 14% of innovations are 'radical'" in spite of the fact that 'radical' innovations are responsible for "61% of profits." While many organizations recognize the relationship between radical innovation and profits there are very few that do anything about it. Hartung believes this "inertia" can be traced back to the theories of scientific management espoused by Frederic Winslow Taylor that are taught in most business schools. Taylor's efficiency studies push business leaders to focus more on cost savings that can easily be matched by competitors. A new wave of business professors are beginning to focus on spurring creativity. Innovation is much more difficult to emulate by your competitors and results in higher returns for successful firms. So, if the choice is between cutting costs or investing in innovation, Hartung votes for innovation. Analyzing the News The author contends that efficiency gains may shave costs but that shareholders rarely reap the benefits of cost-saving since the savings is often passed on to the consumer in lower prices. His position is that innovation is really the ultimate driver that can generate huge gains in shareholder wealth and that managers should have the courage to invest in innovation and R & D so that substantial long-term gains will be realized. Thinking Critically Questions 1. The process of evaluating and selecting projects for a company to invest in is called: A. capital budgeting. B. project generating. C. capital structure. D. budget preparing. 2. The most critical step in project analysis is: A. investing the money. B. establishing a discount rate. C. estimating cash flows. D. calculating the NPV. 3. Investing in research and development or innovation is harder to evaluate than cost-cutting projects because: A. cash flows are easier to estimate. B. management does not understand innovation. C. there is no difference in evaluation difficulty. D. cash flows are harder to estimate.
1. The process of evaluating and selecting projects for a company to invest in is called: A. capital budgeting. 2. The most critical step in project analysis is: C. estimating cash flows. 3. Investing in research and development or innovation is harder to evaluate than cost-cutting projects because: D. cash flows are harder to estimate.
Which of the following will NOT increase a company's dividend payments? Question content area bottom Part 1 A. It can issue more shares. B. It can decrease the number of shares outstanding. C. It can increase its dividend payout rate. D. It can increase its earnings.
A. It can issue more shares.
Which of the following formulas is INCORRECT? Question content area bottom Part 1 A. PN= (rE − g) × DivN+1 B. earnings growth rate = retention rate × return on new investment C. Divt= EPSt × Dividend Payout Rate D. rE= (Divt / P0) + g
A. PN= (rE − g) × DivN+1 Correct is Price = Dividend in 1 year/(cost of equity - growth rate)
Which of the following reasons for considering long−term loans inherently more risky than short−term loans is most accurate? A. The loan values are very sensitive to changes in market interest rates. B. Long−term loans typically have ongoing costs that accumulate over the life of the loan. C. There is a greater chance that inflation may fall in a longer time−frame. D. The penalties for closing out a long term loan early make them unattractive to many investors.
A. The loan values are very sensitive to changes in market interest rates.
Which of the following statements is FALSE of the dividend−discount model? Question content area bottom Part 1 A. We cannot use the dividend−discount model to value the stock of a firm with rapid or changing growth. B. As firms mature, their growth slows to rates more typical of established companies. C. The dividend−discount model values the stock based on a forecast of the future dividends paid to shareholders. D. The simplest forecast for the firm's future dividends states that they will grow at a constant rate, i.e., forever.
A. We cannot use the dividend−discount model to value the stock of a firm with rapid or changing growth.
Which of the following statements is FALSE? Question content area bottom Part 1 A. When evaluating a capital budgeting decision, we generally include interest expense. B. Many projects use a resource that the company already owns. C. Only include as incremental expenses in your capital budgeting analysis the additional overhead expenses that arise because of the decision to take on the project. D. As a practical matter, to derive the forecasted cash flows of a project, financial managers often begin by forecasting earnings.
A. When evaluating a capital budgeting decision, we generally include interest expense.
A decrease in the sales of a current project because of the launching of a new project is Question content area bottom Part 1 A. cannibalization. B. a sunk cost. C. irrelevant to the investment decision. D. an overhead expense.
A. cannibalization.
Which of the following situations can lead to IRR giving a different decision than NPV? Question content area bottom Part 1 A. differences in project scale B. delayed investment C. multiple IRRs D. All of the above can lead to IRR giving a different decision than NPV.
All of the above can lead to IRR giving a different decision than NPV.
Which of the following statements is FALSE? Question content area bottom Part 1 A. An internal rate of return (IRR) will always exist for an investment opportunity. B. A net present value (NPV) will always exist for an investment opportunity. C. The payback investment rule is based on the notion that an opportunity that pays back its initial investments quickly is a good idea. D. In general, there can be as many internal rates of return (IRRs) as the number of times the project's cash flows change sign over time.
An internal rate of return (IRR) will always exist for an investment opportunity.
Which of the following statements regarding bonds and their terms is FALSE? Question content area bottom Part 1 A. Bonds typically make two types of payments to their holders. B. By convention, the coupon rate is expressed as an effective annual rate. C. The time remaining until the repayment date is known as the term of the bond. D. Bonds are securities sold by governments and corporations to raise money from investors today in exchange for a promised future payment.
B. By convention, the coupon rate is expressed as an effective annual rate.
Given that the inflation rate in 2006 was about 3.24%, while a short−term municipal bond offered a rate of 2.9%, which of the following statements is correct? A. The real interest rate for investors in these bonds was greater than the rate of inflation. B. Investors in these bonds were able to buy less at the end of the year than they could have purchased at the start of the year. C. The purchasing power of investors in these bonds grew over the course of the year. D. The nominal interest rate offered by these bonds gave the true increase in purchasing power that resulted from investing in these bonds.
B. Investors in these bonds were able to buy less at the end of the year than they could have purchased at the start of the year.
What is the effective annual rate (EAR)? A. It is the ratio of the number of the annual percentage rate to the number of compounding periods per year. B. It is the interest rate that would earn the same interest with annual compounding. C. It is the interest rate for an n−year time interval, where n may be more than one year or less than or equal to one year (a fraction). D. It refers to the cash flows from an investment over a one−year period divided by the number of times that interest is compounded during the year.
B. It is the interest rate that would earn the same interest with annual compounding.
When the costs of an investment come before that investment's benefits, what will be the effect of a rise in interest rates on the attractiveness of that investment to potential investors? A. It will make it more attractive, since it will decrease the investment's net present value (NPV). B. It will make it less attractive, since it will decrease the investment's net present value (NPV). C. It will make it more attractive, since it will increase the investment's net present value (NPV). D. It will make it less attractive, since it will increase the investment's net present value (NPV).
B. It will make it less attractive, since it will decrease the investment's net present value (NPV).
Which of the following statements is FALSE about interest rates? A. The effective annual rate indicates the amount of interest that will be earned at the end of one year. B. The annual percentage rate indicates the amount of interest including the effect of compounding. C. The annual percentage rate indicates the amount of simple interest earned in one year. D. As interest rates may be quoted for different time intervals, it is often necessary to adjust the interest rate to a time period that matches that of cash flows.
B. The annual percentage rate indicates the amount of interest including the effect of compounding.
Which of the following situations would result in lowering of interest rates by the banking authority of a country? A. The level of investment is quite high. B. The economy is slowing down. C. The rate of savings is quite low. D. Inflation is rising rapidly.
B. The economy is slowing down.
You own 20% of the stock of a company that has 10 directors on its board. How much representation can you get on the board if the company has cumulative voting? How much representation can you ensure if the company has straight voting? Question content area bottom Part 1 How much representation can you get on the board if the company has cumulative voting? (Select the best choice below.) A. With cumulative voting you vote on each director individually, and without a majority of the shares you cannot ensure that your representative will win any of the elections (you could lose 80% to 20% in each of the ten individual elections). B. With cumulative voting you are able to get proportional representation by putting all of your votes toward 2 directors, allowing you to elect representatives to 2 seats (20% of ten seats) on the board. Part 2 How much representation can you ensure if the company has straight voting? (Select the best choice below.) A. With non-cumulative voting you vote on each director individually, and without a majority of the shares you cannot ensure that your representative will win any of the elections (you could lose 80% to 20% in each of the ten individual elections). B. With non-cumulative voting you are able to get proportional representation by putting all of your votes toward 2 directors, allowing you to elect representatives to 2 seats (20% of ten seats) on the board.
B. With cumulative voting you are able to get proportional representation by putting all of your votes toward 2 directors, allowing you to elect representatives to 2 seats (20% of ten seats) on the board. A. With non-cumulative voting you vote on each director individually, and without a majority of the shares you cannot ensure that your representative will win any of the elections (you could lose 80% to 20% in each of the ten individual elections).
Consider the following bonds: Bond Coupon Rate (annual payments) Maturity (years) A 0.0% 15 B 0.0% 10 C 3.8% 15 D 7.8% 10 Which of the bonds A to D is most sensitive to a 1% drop in interest rates from 6.2% to 5.2%? Which bond is least sensitive? Question content area bottom Part 1 Bond ▼ ABCD is most sensitive. (Select from the drop-down menu.) Part 2 Bond ▼ ABCD is the least sensitive. (Select from the drop-down menu.)
Bond A is most sensitive Bond D is the least sensitive.
The prices of several bonds with face values of $1,000 are summarized in the following table: Bond A B C D Price $970.16 $1,042.79 $1,150.43 $1,000.00 For each bond, state whether it trades at a discount, at par, or at a premium. Question content area bottom Part 1 Bond A is selling at ▼ a discount par a premium. (Select from the drop-down menu.) Part 2 Bond B is selling at ▼ a discount par a premium. (Select from the drop-down menu.) Part 3 Bond C is selling at ▼ a discount par a premium. (Select from the drop-down menu.) Part 4 Bond D is selling at ▼ a discount par a premium. (Select from the drop-down menu.)
Bond A: $972.50 Discount bond Bond B: $1,040.75 Premium bond Bond C: $1,150.00 Premium bond Bond D: $1,000.00 Par bond
Which of the following will be a source of cash flows for a shareholder of a certain stock? I. Sale of the shares at a future date II. The firm in which the shares are held paying out cash to shareholders in the form of dividends III. The firm in which the shares are held increasing the total number of shares outstanding through a stock split Question content area bottom Part 1 A. I only B. II only C. I and II D. II and III
C. I and II
Which of the following statements is FALSE regarding profitable and unprofitable growth? Question content area bottom Part 1 A. A firm can increase its growth rate by retaining more of its earnings. B. If a firm retains more earnings, it will pay out less of those earnings, reducing its dividends. C. If a firm wants to increase its share price, it must diversify. D. Cutting a firm's dividend to increase investment will raise the stock price if the new investment has a positive net present value (NPV).
C. If a firm wants to increase its share price, it must diversify.
In an effort to maintain price stability, it is expected that the European Central Bank will raise interest rates in the future. Which of the following is the most likely effect of such an action on short−term and long−term interest rates in Europe? A. No relative change in short and long term interest rates could be predicted. B. Both long− and short−term interest rates would be expected to fall sharply. C. Long−term interest rates will tend to be higher than short−term interest rates. D. Long−term interest rates will be about the same as short−term interest rates.
C. Long−term interest rates will tend to be higher than short−term interest rates.
Historically, why were high inflation rates associated with high nominal interest rates? A. Growth in investment and savings is encouraged when consumers are judged to be overspending. B. High inflation leads to a decrease in purchasing power and thus increases the attractiveness of investment over consumption in the short term. C. The real interest rate needs to be high enough so that individuals can expect their savings to have greater purchasing power in the future than in the present. D. Individuals will spend more when they expect their investments to increase in value.
C. The real interest rate needs to be high enough so that individuals can expect their savings to have greater purchasing power in the future than in the present.
Why are the interest rates of U.S. Treasury securities less than the interest rates of equivalent corporate bonds? Question content area bottom Part 1 A. The U.S. government has a high credit spread. B. There is significant risk that the U.S. government will default. C. U.S. Treasury securities are widely regarded to be risk−free. D. U.S. Treasury securities yield inflation adjusted interest rates.
C. U.S. Treasury securities are widely regarded to be risk−free.
Which of the following is NOT a way that a firm can increase its dividend? Question content area bottom Part 1 A. by decreasing its shares outstanding B. by increasing its dividend payout rate C. by increasing its retention rate D. by increasing its earnings (net income)
C. by increasing its retention rate
Which of the following would you NOT consider when making a capital budgeting decision? Question content area bottom Part 1 A. the additional taxes a firm would have to pay in the next year B. the opportunity to lease out a warehouse instead of using it to house a new production line C. the cost of a marketing study completed last year D. the change in direct labor expense due to the purchase of a new machine
C. the cost of a marketing study completed last year
Which of the following statements is FALSE? A. The interest rates that banks offer on investments or charge on loans depend on the horizon of the investment or loan. B. The Federal Reserve determines very short−term interest rates through its influence on the federal funds rate. C. Fundamentally, interest rates are determined by the Federal Reserve. D. The interest rates that are quoted by banks and other financial institutions are nominal interest rates.
C. Fundamentally, interest rates are determined by the Federal Reserve.
Which of the following statements is true of bond prices? Question content area bottom Part 1 A. A fall in bond prices causes interest rates to fall. B. A fall in interest rates causes a fall in bond prices. C. Bond prices and interest rates are not connected. D. A rise in interest rates causes bond prices to fall.
D. A rise in interest rates causes bond prices to fall.
For each of the following pairs of Treasury securities (each with $1,000 par value), identify which will have the higher price: a. A three-year zero-coupon bond or a five-year zero-coupon bond? b. A three-year zero-coupon bond or a three-year 4% coupon bond? c. A two-year 5% coupon bond or a two-year 6% coupon bond? Question content area bottom Part 1 a. A three-year zero-coupon bond or a five-year zero-coupon bond? Which will have the higher price? (Select the best choice below.) A. A three-year zero-coupon bond, because the present value is received sooner and the future value is higher. B. A five-year zero-coupon bond, because the present value is received sooner and the future value is higher. C. A five-year zero-coupon bond, because the future value is received later and the present value is higher. D. A three-year zero-coupon bond, because the future value is received sooner and the present value is higher. Part 2 b. A three-year zero-coupon bond or a three-year 4% coupon bond? Which will have the higher price? (Select the best choice below.) A. The three-year zero-coupon bond, because a pure discount bond pays higher interest payments than a 4% coupon bond. B. The three-year zero-coupon bond, because the zero-coupon bond is risk-free. C. Since they both have a three-year maturity, they are equal in price. D. The three-year 4% coupon bond, because the 4% coupon bond pays interest payments; whereas the zero-coupon bond is a pure discount bond. Part 3 c. A two-year 5% coupon bond or a two-year 6% coupon bond? Which will have the higher price? (Select the best choice below.) A. The two-year 5% coupon bond, because the future value will be received sooner, therefore the present value must be higher. B. Because they are both two-year coupon bonds, they are equal in price. C. The two-year 5% coupon bond, because the coupon (interest) payments are higher, even though the timing is the same. D. The two-year 6% coupon bond, because the coupon (interest) payments are higher, even though the timing is the same.
D. A three-year zero-coupon bond, because the future value is received sooner and the present value is higher. D. The three-year 4% coupon bond, because the 4% coupon bond pays interest payments; whereas the zero-coupon bond is a pure discount bond. D. The two-year 6% coupon bond, because the coupon (interest) payments are higher, even though the timing is the same.
How are investors in zero−coupon bonds compensated for making such an investment? Question content area bottom Part 1 A. Such bonds have a lower face value as compared to other bonds of similar term. B. Such bonds are purchased at their face value and sold at a premium on a later date. C. Such bonds make regular interest payments. D. Such bonds are purchased at a discount, below their face value.
D. Such bonds are purchased at a discount, below their face value.
Which of the following best shows the timeline for cash flows from a five-year bond with a face value of $2,000, a coupon rate of 4.8%, and semiannual payments? Question content area bottom Part 1 A. The timeline starts at Period 0 and ends at Period 5. The timeline shows a cash flow of 96 dollars each period from Period 1 to Period 4. In Period 5, the cash flow is 2,096 dollars.Period012345$96$96$9696$2,096 B. The timeline starts at Period 0 and ends at Period 10. The timeline shows a cash flow of 96 dollars each period from Period 1 to Period 9. In Period 10, the cash flow is 2,096 dollars.Period0123910$96$96$96$96$2,096 C. The timeline starts at Period 0 and ends at Period 10. The timeline shows a cash flow of 48 dollars each period from Period 1 to Period 10.Period0123910$48$48$48$48$48 D. The timeline starts at Period 0 and ends at Period 10. The timeline shows a cash flow of 48 dollars each period from Period 1 to Period 9. In Period 10, the cash flow is 2,048 dollars.Period0123910$48$48$48$48$2,048
D. The timeline starts at Period 0 and ends at Period 10. The timeline shows a cash flow of 48 dollars each period from Period 1 to Period 9. In Period 10, the cash flow is 2,048 dollars. Period 0 1 2 3 9 10 $48 $48 $48 $48 $2,048
What is the shape of the yield curve given in the following term structure? What expectations are investors likely to have about future interest rates? Term 1 year 2 years 3 years 5 years 7 years 10 years 20 years Rate (EAR, %) 1.98 2.39 2.73 3.32 3.77 4.15 4.94 Part 1 What is the shape of the yield curve given the term structure? (Select the best choice below.) A. The yield curve is an inverted yield curve (decreasing). B. It is hard to tell because we are not given an EAR for every year. C. The yield curve is a flat yield curve. D. The yield curve is a normal yield curve (increasing). Part 2 What expectations are investors likely to have about future interest rates? (Select the best choice below.) A. The yield curve provides no clues as to future interest rate levels. B. Interest rates might decrease in the future. C. Interest rates will likely stay the same in the future. D. Interest rates might rise in the future.
D. The yield curve is a normal yield curve (increasing). D. Interest rates might rise in the future.
Which of the following formulas is INCORRECT? Question content area bottom Part 1 A. P0= Div1 / (rE − g) B. g = Retention Rate × Return on New Investment C. Divt= EPSt × Dividend Payout Rate D. rE= (Div1 / P0) − g
D. rE= (Div1 / P0) − g Correct is rE=(Dividend at time t)/P0)+g
An announcement by the government that they will decrease corporate marginal tax rates in the future would increase the attractiveness of MACRS depreciation. Question content area bottom Part 1 True False
False
According to Graham and Harvey's 2001 survey (Figure 8.2 in the text), the most popular decision rules for capital budgeting used by CFOs are ________. Question content area bottom Part 1 A. Profitability index, NPV, IRR B. MIRR, IRR, Payback period C. IRR, NPV, Payback period D. NPV, IRR, MIRR
IRR, NPV, Payback period
Which of the following statements is FALSE? Question content area bottom Part 1 A. If the cost of capital estimate is more than the internal rate of return (IRR), the net present value (NPV) will be positive. B. In general, the difference between the cost of capital and the internal rate of return (IRR) is the maximum amount of estimation error in the cost of capital estimate that can exist without altering the original decision. C. The internal rate of return (IRR) can provide information on how sensitive your analysis is to errors in the estimate of your cost of capital. D. If you are unsure of your cost of capital estimate, it is important to determine how sensitive your analysis is to errors in this estimate.
If the cost of capital estimate is more than the internal rate of return (IRR), the net present value (NPV) will be positive.
You have purchased a 11% coupon bond for $1,030. What will happen to the bond's price if market interest rates rise? Question content area bottom Part 1 If market interest rates rise, the bond's price will ▼ increase stay the same decrease. (Select from the drop-down menu.)
decrease
Which of the following yield curves would most likely predict a downturn in the economy?
inverted curve
You are trying to decide between three mutually exclusive investment opportunities. The most appropriate tool for identifying the correct decision is ________. Question content area bottom Part 1 A. net present value (NPV) B. internal rate of return (IRR) C. incremental internal rate of return (IRR) D. profitability index
net present value (NPV)
You are opening up a brand new retail strip mall. You presently have more potential retail outlets wanting to locate in your mall than you have space available. What is the most appropriate tool to use if you are trying to determine the optimal allocation of your retail space? Question content area bottom Part 1 A. profitability index B. internal rate of return (IRR) C. payback period D. net present value (NPV)
profitability index
