Week 5 Quiz” for FINC400 I004 Sum 13
Question 1 of 25
In determining the appropriate discount rate for an individual project, the financial manager will be most influenced by the
B.internal rate of return.
D.coefficient of variation.
Question 2 of 25
Which of the following is a characteristic of beta?
A.Beta measures only the volatility of returns on an individual bond relative to a bond market index.
B.A beta of 1.0 is of equal risk with the market.
C.A beta of greater than 1.0 has less risk than the market.
D.Two of the above are true.
uestion 3 of 25
A.is a way of preserving the assets of the firm over the long term.
B.is a less than optimal way to arrive at capital budgeting decisions.
C.assures stockholder wealth maximization.
D.assures maximum potential profitability.
Question 4 of 25
Capital budgeting is only a concern of finance and accounting personnel.
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.
Question 6 of 25
Simulation models allow the planner to:
A.reduce the standard deviations of projects.
B.test possible changes in each variable.
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.
Question 8 of 25
The cost of capital is assumed to contain no risk for the firm.
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?
A.Coefficient of correlation
B.Coefficient of variation
C.Standard deviation of returns
D.Net present value
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.
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.
Question 12 of 25
Which of the following is a false statement?
A.Risky investments may produce large losses.
B.Risky investments may produce large gains.
C.The coefficient of variation is a risk measure.
D.Risk-averse investors cannot be induced to invest in risky assets.
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.
Question 14 of 25
Cash flow can be said to equal
A.operating income less taxes plus depreciation.
B.operating income less taxes.
C.operating income before depreciation and taxes plus depreciation.
D.operating income after taxes minus depreciation.
Question 15 of 25
There are several disadvantages to the payback method, among them:
A.payback ignores the time value of money.
B.payback emphasizes receiving money back as fast as possible for reinvestment.
C.payback is Basic to use and to understand.
D.payback can be used in conjunction with time adjusted methods of evaluation.
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
A.assumes that cash flows are reinvested at the project’s internal rate of return.
B.concentrates on the liquidity aspects of investment projects.
C.assumes that cash flows are reinvested at the firm’s weighted average cost of capital.
D.none of these.
Question 17 of 25
As the cost of capital increases
A.fewer projects are accepted.
B.more projects are accepted.
C.project selection remains unchanged.
D.None of these.
Question 18 of 25
The capital budgeting decisions of a firm will have no effect on the share price of the common stock.
Question 19 of 25
The payback method considers all cash inflows.
uestion 20 of 25
Capital budgeting is primarily concerned with
A.capital formation in the economy.
B.planning future financing needs.
C.evaluating investment alternatives.
D.minimizing the cost of capital.
Question 21 of 25
In most capital budgeting decisions the emphasis should be on reported earnings rather than cash flows.
uestion 22 of 25
Which of the following statements about the “payback method” is true?
A.The payback method considers cash flows after the payback has been reached.
B.The payback method does not consider the time value of money.
C.The payback method uses discounted cash-flow techniques.
D.The payback method generally leads to the same decision as other investment selection methods
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.
Question 24 of 25
Simulation models allow the analyst to test possible changes in the variables used in the model.
uestion 25 of 25
The first step in the capital budgeting process is
A.collection of data.
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