Finance Quiz 4 Practice Quiz

When you assign the highest anticipated sales price and the lowest anticipated costs to a project, you are analyzing the project under the condition known as:

Best case scenario analysis

___ is the minimum required return on a new investment

Cost of capital

Textile Mills borrows money at a rate of 13.5 percent. This interest rate is referred to as the:

Cost of debt

____ is the return that equity investors require on their investment in the firm.

Cost of equity

The IRR that causes the NPV of the differences between two project's cash flows to equal zero is called the:

Crossover rate

The _____ represents the tax saving that results from the depreciation deduction, calculated as depreciation multiplied by the corporate tax rate.

Depreciation tax shield

The internal rate of return is defined as the:

Discount rate which causes the net present value of a project to equal zero.

Which one of the following methods of project analysis is defined as computing the value of a project based on the present value of the project's anticipated cash flows?

Discounted cash flow valuation

The WACC is always the interest rate firms should use when discounting project cash flows in capital budgeting analysis.

False

___ is the possibility that errors in projected cash flows will lead to incorrect decisions.

Forecasting risk

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

Incremental cash flows

_____ is the possibility that more than one discount rate will make the NPV of an investment zero.

Multiple rates of return

_____ are competing projects which both require the use of the same limited resource.

Mutually exclusive projects

The _____ criterion is the best way to evaluate proposed investments.

NPV

The option that is forgone so that an asset can be utilized by a specific project is referred to as which one of the following?

Opportunity Cost

___ is the determination of what happens to net present value estimates when we ask "what-if" questions.

Scenario analysis

The procedure of allocating a fixed amount of funds for capital spending to each business unit is called:

Soft rationing

Which one of the following best describes the concept of erosion?

The cash flows of a new project that come at the expense of a firm's existing cash flows.