Fnce 125 Midterm Multiple choice

How is after tax-salvage value handled when computing the npv of the project?

Cash inflow in the final year of the project

Machlab equipment is comparing three machines to determine which one to purchase. Each machine has a unique price, annual operating cost, and life span. Which one of the following computational methods should Machlab use as the basis for its decision?

Equivalent annual cost (EAC)

When analyzing a project, scenario analysis is best suited to accomplish which one of the following?

Identifying the potential range of reasonable outcomes

Which one of the following best states the primary goal of financial management?

Maximize the current value per share

You are viewing a graph that plots the NPVs of a project to various discount rates that could be applied to the project's cash flows. What is the name given to this graph?

NPV profile

Sensitivity analysis determines the

degree to which the net present value reacts to changes in a single variable.

As the degree of sensitivity of a project to a single variable rises, the:

greater the importance of accurately predicting the value of that variable

A project has net present value of zero. Given this information:

he project's cash inflows equal its cash outflows in current dollar terms

Forecasting risk is defined as the possibility that:

incorrect decisions will be made due to erroneous/inaccurate cash flow projections

The difference between a company's future cash flows if it accepts a project and the company's future cash flows if it does not accept the project is referred to as the project's

incremental cash flows

The Sarbanes-oxley act of 2002 is a governmental response to

management greed and abueses revealed by the several corporate scandals in the early 2000s

do you use irr for mutually exclusive projects

no it is unreliable and should use a different method of analysis

Humberto is a business analyst at Deloitte. When analyzing a new project, he projects the most optimistic, the most realistic, and the most pessimistic outcome using reasonably expected scenarios underlying his assumptions. Which type of analysis is he using?

scenario analysis

Financial managers should primarily focus on the interests of

shareholders

The fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles?

stand alone principle

If a project has a net present value equal to zero, then:

the project earns a return exactly equal to discount rate