Description of this paper

Arguments against using the net present value and internal rate of return methods




Arguments against using the net present value and internal rate of return methods include that;they fail to use accounting profits.;they require detailed long-term forecasts of the incremental benefits and costs.;they fail to consider how the investment project is to be financed.;they fail to use the cash flow of the project.;Question 4 2 points;Save;Dividends generally;are paid as a fixed percentage of earnings;fluctuate more than earnings;are guaranteed by the SEC;are more stable than earnings;Question 7 2 points;Save;A firm that uses large amounts of debt financing in an industry characterized by a high degree;of business risk would have _______ earnings per share fluctuations resulting from changes in;levels of sales.;no;constant;large;small;Question 12 2 points;Save;The moderate view of capital structure management says that the cost of capital curve is;a straight line;V-shaped;S-shaped;none of the above;Question 14 2 points;Save;A significant advantage of the internal rate of return is that it;Provides a means to choose between mutually exclusive projects.;Provides the most realistic reinvestment assumption.;Avoids the size disparity problem.;None of the above.;Question 15 2 points;Save;How frequently do corporations generally pay dividends?;Annually;Semi-annually;Quarterly;Monthly;Question 16 2 points;Save;Which type of risk is a direct result of a firm's financing decision?;business risk;financial risk;systematic risk;risk aversion;Question 17 2 points;Save;A project would be acceptable if;The payback is greater than the discounted equivalent annual annuity.;The equivalent annual annuity is greater than or equal to the firm's discount rate.;The profitability index is greater than the net present value.;None of the above.;Question 21 2 points;Save;A significant disadvantage of the internal rate of return is that it;Does not fully consider the time value of money.;It does not give proper weight to all cash flows.;Can result in multiple rates of return (more than one IRR).;All of the above.;Question 22 2 points;Save;Which of the following is a method of distributing a firm's profits to its owners?;Cash dividends.;Stock dividends.;Stock repurchase program.;All of the above.;None of the above.;Question 23 2 points;Save;Dividend policy is influenced by;a company's investment opportunities;a firm's capital structure mix;a company's availability of internally generated funds;a and c;a, b, and c;Question 26 2 points;Save;Which of the following causes a firm's cost of capital (WACC) to differ from an investor's;required rate of return on the company's common stock?;The fact that interest payments on debt are tax-deductible.;The incurrence of flotation costs when new securities are issued.;Both a and b above;None of the above - the WACC and required return are the same;Question 27 2 points;Save;If the federal income tax rate were increased, the result would be to;decrease the net present value;increase the net present value;increase the payback period;a and c;Question 28 2 points;Save;The simulation approach provides us with;a single value for the risk-adjusted net present value;an approximation of the systematic risk level;a probability distribution of the project's net present value or internal rate of return;a graphic exposition of the year-by-year sequence of possible outcomes;Question 29 2 points;Save;Which of the following would be a method of improving a firm's economic profit? Assume all;else equal.;Identify and improve operating efficiencies.;Increase sales.;Dispose of underutilized assets.;Recapitalize the firm to reduce its cost of capital.;All of the above.;Question 33 2 points;Save;Which of the following statements about the internal rate of return is false?;It has an unrealistic reinvestment assumption.;It never gives conflicting answers.;It fully considers the time value of money.;All of the above.;Question 34 2 points;Save;Assume that Johnson & Squib have 1,000,000 common shares outstanding that have a par;value of $3 per share. The stock currently sells for $15 per share. Which of the following will;result from a 2 for 1 stock split?;A decrease in retained earnings of $1,500,000.;Market value will increase from $15 per share to $30 per share.;Par value will increase from $3 per share to $6 per share.;The number of outstanding shares will increase from 1,000,000 to 2,000,000.;Question 35 2 points;Save;The moderate view of capital structure management assumes;no corporate income taxes;cost of equity remains constant with an increase in financial leverage;firms may fail;both b and c;Question 37 2 points;Save;The disadvantage of the IRR method is that;the IRR deals with cash flows.;the IRR gives equal regard to all returns within a project's life.;the IRR will always give the same project accept/reject decision as the NPV.;the IRR requires long, detailed cash flow forecasts.;Question 40 2 points;Save;The cost of retained earnings is less than the cost of new common stock because;marginal tax brackets increase.;flotation costs are incurred when new stock is issued.;both a and b above;none of the above;Question 42 2 points;Save;Which of the following statements would be consistent with the residual dividend theory?;Wealthy investors prefer corporations to defer dividend payments because capital gains;produce greater after-tax income.;Dividends are more certain than capital gains.;Dividends should only be paid if a firm has profits in excess of the amount needed to finance;the current year's capital investments.;Investors are indifferent whether stock returns come from dividend income or capital gains;income.;None of the above.;Question 43 2 points;Save;One component of a firm's financial structure which is not a component of its capital structure;is;preferred stock;mortgage bonds;accounts payable;retained earnings;Question 45 2 points;Save;Basic tools of capital-structure management include;EBIT-EPS analysis;comparative leverage ratios;capital budgeting techniques;both a and b;Question 46 2 points;Save;Which problem listed is not associated with the corresponding method of measuring the;common stockholder's required rate of return?;Estimation of the expected growth rate of future dividends: The dividend-growth model;Determination of the expectations in the minds of investors: The CAPM approach;The estimates of the risk premium involve subjectivity: The risk-premium approach;All of the above are correct;Question 48 2 points;Save;Which of the following statements about project standing alone risk is true?;It ignores the fact that much of the risk of a project will be diversified away as the project is;combined with the firm's other projects.;It ignores the cash flows that are associated with a project that occur beyond the payback;period.;It takes into consideration the effects of diversification of the firm's shareholders.;None of the above.;Question 49 2 points;Save;Incremental cash flows refer to;The difference between after-tax cash flows and before-tax accounting profits.;The new cash flows that will be generated if a project is undertaken.;The cash flows of a project, minus financing costs.;The cash flows that are foregone if a firm does not undertake a project.;Question 50 2 points;Save;An independent project should be accepted if it;Produces a net present value that is greater than or equal to zero.;Produces a net present value that is greater than the equivalent IRR.;Has only one sign reversal.;None of the above.


Paper#28305 | Written in 18-Jul-2015

Price : $27