Finance Exam 4: Ch. 13
. These are sets of cash flows where all the initial cash flows are negative and all the subsequent ones are either zero or positive. A. expected cash flows B. time line cash flows C. non-normal cash flows D. normal cash flows
D
A capital budgeting method that converts a project's cash flows using a more consistent reinvestment rate prior to applying the IRR decision rule is referred to as ______________. A. IRR B. EAR C. NPV D. MIRR
D
A project has normal cash flows. Its IRR is 15 percent and its cost of capital is 10 percent. Given this, the project must have: A. only one negative cash flow. B. a PI that is negative. C. a discounted payback period that is shorter than its payback period. D. an NPV that is greater than zero
D
All capital budgeting techniques A. render the same investment decision. B. use the same measurement units. C. include all crucial information. D. exclude some crucial information.
D
All of the following are strengths of NPV except _______________. A. It works equally well for independent and mutually exclusive projects B. Managers have a preference for using a statistic that is in percent instead of dollars C. It uses a conservative reinvestment rate assumption D. These are all strengths of the NPV statistic
D
Of the capital budgeting techniques discussed, which works equally well with normal and non-normal cash flows and with independent and mutually exclusive projects? A. payback period B. discounted payback period C. modified internal rate of return D. net present value
D
Under what conditions can a rate-based statistic yield a different accept/reject decision than NPV? A. Independent projects that are evaluated at a high cost of capital. B. Mutually exclusive projects that are evaluated at a low cost of capital. C. Any projects that exhibit differences in scale or timing. D. Mutually exclusive projects that exhibit differences in scale or timing.
D
A project's IRR ____________________. A. is the average rate of return necessary to pay back the project's capital providers B. will change with the cost of capital C. is equal to the discounted cash flows divided by the number of cash flows if the cash flows are a perpetuity D. All of these answers are correct
A
All of the following capital budgeting tools are suitable for firms facing time constraints except ______. A. NPV B. Payback C. Discounted payback D. All of these answers are suitable for firms facing time constraints.
A
The Net Present Value decision technique may not be the only pertinent unit of measure if the firm is facing A. time or resource constraints. B. a labor union. C. the election of a new board of directors. D. a major investment
A
This technique for evaluating capital projects is particularly useful when firms face time constraints in repaying investors. A. payback B. internal rate of return. C. net present value D. profitability index
A
This technique for evaluating capital projects tells how long it will take a firm to earn back the money invested in a project. A. payback B. internal rate of return C. net present value D. profitability index
A
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. A. discounted payback B. net present value C. internal rate of return D. profitability index
B
A decision rule and associated methodology for converting the NPV statistic into a rate-based metric is referred to as _______________________. A. NPV B. Profitability Index C. MIRR D. Discounted Payback
B
A graph of a project's ______ is a function of cost of capital. A. discounted payback B. net present value C. modified internal rate of return D. profitability index
B
Suppose you have a project whose discounted payback is equal to its termination date. What can you say for sure about its PI? A. The discounted payback will be greater than zero. B. It will have a PI and NPV of zero. C. The NPV and IRR will yield the same decision. D. The IRR will just equal the cost of capital.
B
The Net Present Value decision technique uses a statistic denominated in A. years. B. currency. C. a percentage. D. time lines
B
This technique for evaluating capital projects tells how long it will take a firm to earn back the money invested in a project plus interest at market rates. A. payback B. discounted payback C. net present value D. profitability index
B
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. A. discounted payback B. net present value C. modified internal rate of return D. profitability index
C
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 ______________. A. PI B. IRR C. NPV D. MIRR
C
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. A. discounted payback B. net present value C. internal rate of return D. profitability index
C
All of the following capital budgeting tools are suitable for non-normal cash flows except ____. A. MIRR B. Profitability Index C. Discounted Payback D. NPV
C
All of the following capital budgeting tools are suitable for non-normal cash flows except ____. A. MIRR B. Profitability Index C. IRR D. NPV
C
All of the following capital budgeting tools are suitable for non-normal cash flows except ____. A. MIRR B. Profitability Index C. Payback D. NPV
C
Neither payback period nor discounted payback period techniques for evaluating capital projects account for A. time value of money. B. market rates of return. C. cash flows that occur after payback. D. cash flows that occur during payback.
C
The benchmark for the Profitability Index, PI, is the A. cost of capital B. managers' maximum number of years C. zero or anything larger than zero D. zero or anything less than zero
C
These are groups or pairs of projects where you can accept one but not all. A. dependent B. independent C. mutually exclusive D. mutually dependent
C
Which rate-based decision statistic measures the excess return (the amount above and beyond the cost of capital for a project), rather than the gross return? A. Internal Rate of Return, IRR B. Modified Internal Rate of Return, MIRR C. Profitability Index, PI D. Net Present Value, NPV
C
When choosing between two mutually exclusive projects using the payback period method for evaluating capital projects, one would choose A. either project if they both are more than managers' maximum payback period. B. neither project if they both are less than managers' maximum payback period. C. the project that pays back the soonest. D. the project that pays back the soonest if it is equal to or less than managers' maximum payback period
D
Which of the following tools is suitable for choosing between mutually exclusive projects? A. Profitability Index B. IRR C. MIRR D. NPV
D