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FINC400
week 5 quiz
FINC400
Week 5 Quiz” for FINC400 I004 Sum 13
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Question 1 of 25 |
4.0 Points |
In determining the appropriate discount rate for an individual project, the financial manager will be most influenced by the
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[removed] A.expected value. |
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[removed] B.internal rate of return. |
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[removed] C.standard deviation. |
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[removed] D.coefficient of variation. |
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Question 2 of 25 |
Which of the following is a characteristic of beta?
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[removed] A.Beta measures only the volatility of returns on an individual bond relative to a bond market index. |
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[removed] B.A beta of 1.0 is of equal risk with the market. |
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[removed] C.A beta of greater than 1.0 has less risk than the market. |
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[removed] D.Two of the above are true. |
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uestion 3 of 25 |
Capital rationing
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[removed] A.is a way of preserving the assets of the firm over the long term. |
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[removed] B.is a less than optimal way to arrive at capital budgeting decisions. |
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[removed] C.assures stockholder wealth maximization. |
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[removed] D.assures maximum potential profitability. |
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Question 4 of 25 |
Capital budgeting is only a concern of finance and accounting personnel.
| [removed] A. True[removed] B. False |
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Question 5 of 25 |
Even though one project may have superior cash flows, top management may sometimes choose a project that inflates earnings instead of cash flow.
[removed] A. True[removed] B. False
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Question 6 of 25 |
Simulation models allow the planner to:
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[removed] A.reduce the standard deviations of projects. |
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[removed] B.test possible changes in each variable. |
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[removed] C.deal with the uncertainty in forecasting outcome |
D.b and c.
| Question 7 of 25 |
The selection of a mutually exclusive project means that all other projects with a positive net present value may also be selected.
[removed] A. True[removed] B. False
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Question 8 of 25 |
The cost of capital is assumed to contain no risk for the firm.
[removed] A. True[removed] B. False
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Question 9 of 25 |
If three investment alternatives all have some degree of risk and different expected returns, which of the following measures could best be used to rank the risk levels of the projects?
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[removed] A.Coefficient of correlation |
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[removed] B.Coefficient of variation |
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[removed] C.Standard deviation of returns |
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[removed] D.Net present value |
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Question 10 of 25 |
To find the exact internal rate of return for projects with uneven cash flows, we can interpolate between two present value annuity factors from Appendix D.
[removed] A. True[removed] B. False
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Question 11 of 25 |
Projects with high positive correlation are sometimes valuable because they allow us to smooth out the overall performance of the firm during a business cycle.
[removed] A. True[removed] B. False
| Question 12 of 254.0 Points
Which of the following is a false statement? [removed] A.Risky investments may produce large losses. [removed] B.Risky investments may produce large gains. [removed] C.The coefficient of variation is a risk measure. [removed] D.Risk-averse investors cannot be induced to invest in risky assets. |
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uestion 13 of 25 |
Regardless of risk, no projects should be accepted unless they earn more than the firm’s weighted average cost of capital.
[removed] A. True[removed] B. False
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Question 14 of 25 |
Cash flow can be said to equal
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[removed] A.operating income less taxes plus depreciation. |
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[removed] B.operating income less taxes. |
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[removed] C.operating income before depreciation and taxes plus depreciation. |
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[removed] D.operating income after taxes minus depreciation. |
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Question 15 of 25 |
There are several disadvantages to the payback method, among them:
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[removed] A.payback ignores the time value of money. |
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[removed] B.payback emphasizes receiving money back as fast as possible for reinvestment. |
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[removed] C.payback is Basic to use and to understand. |
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[removed] D.payback can be used in conjunction with time adjusted methods of evaluation. |
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uestion 16 of 25 |
The Net Present Value Method is a more conservative technique for selecting investment projects than the Internal Rate of Return method because the NPV method
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[removed] A.assumes that cash flows are reinvested at the project’s internal rate of return. |
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[removed] B.concentrates on the liquidity aspects of investment projects. |
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[removed] C.assumes that cash flows are reinvested at the firm’s weighted average cost of capital. |
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[removed] D.none of these. |
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Question 17 of 25 |
As the cost of capital increases
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[removed] A.fewer projects are accepted. |
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[removed] B.more projects are accepted. |
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[removed] C.project selection remains unchanged. |
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[removed] D.None of these. |
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Question 18 of 25 |
The capital budgeting decisions of a firm will have no effect on the share price of the common stock.
| [removed] A. True[removed] B. False- |
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Question 19 of 25 |
The payback method considers all cash inflows.
[removed] A. True[removed] B. False
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uestion 20 of 25 |
Capital budgeting is primarily concerned with
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[removed] A.capital formation in the economy. |
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[removed] B.planning future financing needs. |
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[removed] C.evaluating investment alternatives. |
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[removed] D.minimizing the cost of capital. |
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Question 21 of 25 |
In most capital budgeting decisions the emphasis should be on reported earnings rather than cash flows.
[removed] A. True[removed] B. False
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uestion 22 of 25 |
Which of the following statements about the “payback method” is true?
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[removed] A.The payback method considers cash flows after the payback has been reached. |
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[removed] B.The payback method does not consider the time value of money. |
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[removed] C.The payback method uses discounted cash-flow techniques. |
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[removed] D.The payback method generally leads to the same decision as other investment selection methods |
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uestion 23 of 25 |
The internal rate of return is the interest rate that equates the cash outflows of an investment with the subsequent inflows.
[removed] A. True[removed] B. False
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Question 24 of 25 |
Simulation models allow the analyst to test possible changes in the variables used in the model.
[removed] A. True[removed] B. False
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uestion 25 of 25 |
The first step in the capital budgeting process is
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[removed] A.collection of data. |
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[removed] B.idea development. |
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[removed] C.assign probabilities. |
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[removed] D.determine cashflow. |
