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

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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

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