FINANCE EXAM 3 (CHPT 8, 9, 10)

10. Which one of the following statements is correct?

The payback period ignores the time value of money

1. Which one of the following combinations will always result in an increased dividend yield?

a) Decrease in the stock price combined with a higher dividend amount

The internal rate of return is the

a) discount rate that results in a zero net present value for the project.

1. The variance is the average squared difference between which of the following?

actual return and average return

1. An efficient capital market is best defined as a market in which security prices reflect which one of the following?

all available information

1. Which of the following are example of sunk cost?

all of the above

1. The net present value of an investment represents the difference between the investment's:

cost and market value

1. Which of the following are not example of sunk cost?

cost of the equipment

The net present value profile illustrates how the net present value of an investment is affected by which one of the following

discount rate

1. Which one of the following terms is most commonly used to describe the cash flows of a new project that are simply an offset of reduced cash flows for a current project?

erosion

1. Which of the following should not be included in the project analysis?

financing cost

1. Any changes to a firm's projected future cash flows that are caused by adding a new project are referred to as:

incremental cash flows

1. Both Projects A and B are acceptable as independent projects. However, the selection of either one of these projects eliminates the option of selecting the other project. Which one of the following terms best describes the relationship between Project A and Project B?

mutually exclusive

1. Which one of the following indicates that a project is expected to create value for its owners?

positive net present value

Which one of the following can be defined as a benefit-cost ratio

profitability index

Which one of the following indicates that a project should be rejected? Assume the cash flows are normal, i.e., the initial cash flow is negative.

profitability index less than 1.0

1. The payback period is the length of time it takes an investment to generate sufficient cash flows to enable the project to:

recoup its initial cost

1. On a particular risky investment, investors require an excess return of 7 percent in addition to the risk-free rate of 4 percent. What is this excess return called?

risk premium

Over the period of 1926-2014, which one of the following investment classes had the highest volatility of returns

small-company stocks

1. Which one of the following principles refers to the assumption that a project will be evaluated based on its incremental cash flows?

stand-alone principle

1. A cost that should be ignored when evaluating a project because that cost has already been incurred and cannot be recouped is referred to as a(an):

sunk cost

1. If an investment is producing a return that is equal to the required return, the investment's net present value will be:

zero