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Finance 534 week 7 quiz 6
Question 1
Which
of the following statements is CORRECT?
Answer
Question 2
Which
of the following statements is CORRECT?
Question 3
Assume
that the economy is in a mild recession, and as a result interest rates and
money costs generally are relatively low. The WACC for two mutually exclusive
projects that are being considered is 8%.
Project S has an IRR of 20% while Project L's IRR is 15%. The projects
have the same NPV at the 8% current WACC.
However, you believe that the economy is about to recover, and money
costs and thus your WACC will also increase.
You also think that the projects will not be funded until the WACC has
increased, and their cash flows will not be affected by the change in economic
conditions. Under these conditions,
which of the following statements is CORRECT?
Question 4
Four
of the following statements are truly disadvantages of the regular payback
method, but one is not a disadvantage of this method. Which one is NOT
a disadvantage of the payback
method?
Question 5
Which
of the following statements is CORRECT?
Question 6
Which
of the following statements is CORRECT?
Assume that the project being considered has normal cash flows, with one
outflow followed by a series of inflows.
Question 7
Which
of the following statements is CORRECT?
Question 8
Which
of the following statements is CORRECT?
Question 9
Which
of the following statements is CORRECT?
Question 10
Which
of the following statements is CORRECT?
Assume that the project being considered has normal cash flows, with one
outflow followed by a series of inflows.
Question 11
Which
of the following statements is CORRECT?
Question 12
Which
of the following statements is CORRECT?
Assume that the project being considered has normal cash flows, with one
outflow followed by a series of inflows.
Question 13
Assume
that the economy is enjoying a strong boom, and as a result interest rates and
money costs generally are relatively high. The WACC for two mutually exclusive
projects that are being considered is 12%.
Project S has an IRR of 20% while Project L's IRR is 15%. The projects
have the same NPV at the 12% current WACC.
However, you believe that the economy will soon fall into a mild
recession, and money costs and thus your WACC will soon decline. You also think that the projects will not be
funded until the WACC has decreased, and their cash flows will not be affected
by the change in economic conditions.
Under these conditions, which of the following statements is CORRECT?
Question 14
Which
of the following statements is CORRECT?
Question 15
Which
of the following statements is CORRECT?
Question 16
The
relative risk of a proposed project is best accounted for by which of the
following procedures?
Question 17
Which
of the following statements is CORRECT?
Question 18
Rowell
Company spent $3 million two years ago to build a plant for a new product. It then decided not to go forward with the
project, so the building is available for sale or for a new product. Rowell owns the building free and
clear--there is no mortgage on it. Which
of the following statements is CORRECT?
Question 19
Which
of the following should be considered when a company estimates the cash flows
used to analyze a proposed project?
Question 20
Which
of the following statements is CORRECT?
Question 21
A
company is considering a new project.
The CFO plans to calculate the project’s NPV by estimating the relevant
cash flows for each year of the project’s life (i.e., the initial investment
cost, the annual operating cash flows, and the terminal cash flow), then
discounting those cash flows at the company’s overall WACC. Which one of the following factors should the
CFO be sure to INCLUDE in the cash flows when estimating the relevant cash
flows?
Question 22
Which
of the following factors should be included in the cash flows used to estimate
a project’s NPV?
Question 23
Which
of the following rules is CORRECT for capital budgeting analysis?
Question 24
Currently,
Powell Products has a beta of 1.0, and its sales and profits are positively
correlated with the overall economy. The
company estimates that a proposed new project would have a higher standard
deviation and coefficient of variation than an average company project. Also, the new project’s sales would be
countercyclical in the sense that they would be high when the overall economy
is down and low when the overall economy is strong. On the basis of this information, which of
the following statements is CORRECT?
Question 25
2 out of 2 points
Which
of the following statements is CORRECT?
Question 26
Which
of the following procedures does the text say is used most frequently by
businesses when they do capital budgeting analyses?
Question 27
A
firm is considering a new project whose risk is greater than the risk of the
firm’s average project, based on all methods for assessing risk. In evaluating this project, it would be
reasonable for management to do which of the following?
Question 28
When
evaluating a new project, firms should include in the projected cash flows all
of the following EXCEPT:
Question 29
Which
of the following is NOT a relevant cash flow and thus should not be reflected
in the analysis of a capital budgeting project?
Question 30
Suppose
Tapley Inc. uses a WACC of 8% for below-average risk projects, 10% for
average-risk projects, and 12% for above-average risk projects. Which of the following independent projects
should Tapley accept, assuming that the company uses the NPV method when
choosing projects?
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