Fin

Which of the following statements is true of a project with larger early cash inflows?

A project with larger early cash inflows provides more funds for reinvestment in the early years

Which of the following statements is true of a required rate of return?

A required rate of return is the discount rate that the IRR must exceed for a project to be considered acceptable.

Blue Textiles is considering selling its old dying machine and replacing it with a new one that will cost $8,000. If the market value of the old machine is $2,000, then the initial outlay of this replacement is _____.

$6,000 - Cash from the sale of old assets reduces the initial outlay

Oneta Chemical Company evaluated a project that is riskier than the firm's average risk. It generally expects a return of 12% from an average-risk project and adjusts the discount rate by 3% depending on the risk of a project. Oneta should expect a return of _____ from this project.

Return from risky projects = Return from average-risk projects + Adjusting required rate of return = 12% + 3% =15%

Which of the following is considered while calculating the terminal cash flow?

Salvage value

Which of the following costs should be included under relevant cash flows while making capital budgeting decisions?

Shipping and installation cost

Which of the following is a limitation of the net present value (NPV) method over the internal rate of return (IRR) method of capital budgeting?

The net present value (NPV) method contains no information about the amount of capital at risk.

Which of the following statements is true of a project with a negative net present value (NPV)?

The project's required rate of return would exceed the internal rate of return (IRR).

If a firm is evaluating a capital budgeting project that is much riskier than its existing investments, what adjustment should be made to the rate of return that is used to evaluate the riskier project?

The rate of return that is used to evaluate the project should be higher than the firm's average required rate of return.

Which of the following statements is true of the internal rate of return (IRR) method?

Using the IRR method could lead to investment decisions that increase wealth but do not maximize it.

A capital budgeting project should be accepted if its NPV is:

positive after discounting all the cash inflows and outflows for the project.

Repatriation of earnings refers to the:

process of sending cash flows from a foreign subsidiary back to the parent company

A(n) _____ is the discount rate that forces the present value of a project's expected cash flows to equal its initial cost—that is, the rate where the project's net present value equals zero.

project's internal rate of return

The depreciable basis of a capital asset generally includes the purchase price of the asset plus the _____ that are required to make the asset operational.

shipping and installation cost

The net present value (NPV) method assumes that _____.

the cash flows from a project can be reinvested at the firm's required rate of return

ZincBoe Enterprises, an all-equity firm, has a beta coefficient of 1.5. The risk-free rate is 10 percent, and the market risk premium is 6 percent. The expected rate of return is _____.

Expected return (rproj) = Risk-free rate (rRF)+ (Market return (rM) - Risk-free rate (rRF)) × Beta risk (βproj); 10% + 6% × (1.5) = 19%

Which of the following actions can reduce the impact of expropriation?

Financing a foreign subsidiary through capital raised in the host country.

Analyzes investments in terms of percentages

IRR

Assumes a project's cash flow is reinvested at a rate that is generally viewed as unrealistic

IRR

Strongly preferred by business executives

IRR

Which of the following is true of corporate risk?

It is the risk that does not consider stockholder's diversification.

Analyzes investments in terms of dollars

NPV

Should be used for purchasing decisions when evaluating mutually exclusive projects

NPV

Strongly preferred by academia

NPV

Which of the following capital budgeting techniques has experienced the greatest increase in usage by firms since the 1970s?

Net present value

Which of the following methods gives a direct measure of the dollar benefit on a present value basis to the firm's shareholders?

Net present value (NPV) method

Azure Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial cash outflow is $20,000 for each project. Project A results in cash inflows of $12,500 every year for two years. Project B results in cash inflows of $26,000 in the second year. The required rate of return of Azure Inc. is 10 percent. Based on the net present value approach, Azure Inc. should invest in:

Project A only

If two projects are of equal size and have the same life, then the _____ and the _____ will always lead to the same project selection decision.

net present value (NPV), modified internal rate of return (MIRR)

The net incremental operating cash flow is calculated by adding back the _____ change in to the change in income after taxes.

depreciation

When computing a project's modified internal rate of return (MIRR), its terminal value is determined by computing the _____.

future value of the expected cash inflows

The point where the NPV profile on a graph that shows the net present values for a project at various discount rates crosses the X-axis indicates a project's _____.

internal rate of return