Chapter 11 Mc chapter 12 MC chapter 13 Mc
The net present value decision technique uses a statistic denominated in
Currency
Which of the following statements is correct?
A weakness of both payback and discounted payback is that neither accounts for cash flows received after the payback.
When firms use multiple sources of capital, they need to calculate the appropriate discount rate for valuing their firm's cash flows as
A weighted average of the capital components costs.
Which of these is used as a measure of the total amount of available cash flow from a project?
Free cash flow
Which of the following is a capital budgeting technique that converts a project's cash flows using a more consistent reinvestment rate prior to applying the internal rate of return, IRR, decision rule?
Modified internal rate of return
A capital budgeting technique that generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flows is referred to as
NPV
Which of the following is a true statement regarding the appropriate tax rate to be used in the WACC?
One would use the weighted average of the marginal tax rates that would have been paid on the taxable income shielded by the interest deduction.
Which of the following is a technique for evaluating capital projects that is particularly useful when firms face time constraints in repaying investors?
Payback
Which of the following is a technique for evaluating capital projects that tells how long it will take a firm to earn back the money invested in a project?
Payback
Which of these is the process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements?
Pro forma analysis
Which of the following is NOT included when calculating the depreciable basis for real property?
Financing fees
To correctly project cash flows, we need to consider all of the factors EXCEPT
All of these choices are correct.
Which of the following is a technique for evaluating capital projects that tells how long it will take a firm to earn back the money invested in a project plus interest at market rates?
Discounted payback
Which of these statements is true regarding calculating weights for WACC?
If we are calculating WACC for the firm, then equity, preferred stock and debt would be the entire market value of each source of capital
Which of these is a capital budgeting technique that generates decision rules and associated metrics for choosing projects based upon the implicit expected geometric average of a project's rate of return?
Internal rate of return
Which of the following statements regarding payback (PB) is/are true?
Is a capital budgeting technique that generates decision rules and associated metrics for choosing projects based on how quickly they return their initial investment.
Which of the following statements regarding discounted payback (DPB) is/are not true?
It ignores any cash flows that accrue after the project reaches its respective payback benchmark. Is a capital budgeting method that generates decision rules and associated metrics that choose projects based on how quickly they return their initial investment plus interest. both a and b are not true.
Which of the following will increase the cost of equity?
The firm's share price falls 10 percent.
Which of the following is a true statement?
To estimate the before-tax cost of debt, we need to solve for the Yield to Maturity (YTM) on the firm's existing debt.
All of the following can be included in the depreciable basis of an asset EXCEPT
Variable cost
Neither payback period nor discounted payback period techniques for evaluating capital projects account for
cash flows that occur after payback.
An asset's cost plus the amounts you paid for items such as sales tax, freight charges, and installation and testing fees is referred to as the ___________________.
depreciable basis
A disadvantage of the payback statistic is that
it does not reflect the time value of money. it does not give an indication of the project's riskiness. it does not consider cash flows beyond the payback period. All of these choices are correct.
All of the following are strengths of NPV EXCEPT
managers have a preference for using a statistic that is in percent instead of dollars.
When calculating the weighted average cost of capital, weights are based on
market values.
All of the following are strengths of payback EXCEPT
none of the options.
Which of these completes this statement to make it true? The constant growth model is
only going to be appropriate for the limited number of stocks that just happen to expect constant growth.
The process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements is referred to as
pro forma analysis
Accelerated depreciation allows firms to
receive more of the dollars of depreciation earlier in the asset's life.
With regard to depreciation, the time value of money concept tells us that
taking the depreciation expense sooner is always better.
The MIRR statistic is different from the IRR statistic in that
the MIRR assumes that the cash inflows can be reinvested at the cost of capital.
What is the theoretical minimum for the weighted average cost of capital?
the after-tax cost of debt
When choosing between two mutually exclusive projects using the payback period method for evaluating capital projects, one would choose
the project that pays back the soonest if it is equal to or less than managers' maximum payback period.
Which of these makes this a true statement? The WACC formula
uses the after-tax costs of capital to compute the firm's weighted average cost of debt financing.
We accept projects with a positive NPV because it means that
we have recovered all our costs. we are creating wealth for shareholders. the project's expected return exceeds the cost of capital. all of the options.
As new capital budgeting projects arise, we must estimate
when such projects will require cash flows.
