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##### Saint MBA570 quiz 3

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Question;The NPV;profile graphs: (Points: 10);the project's NPV over a;range of discount rates.;the project's IRR over a range of discount rates.;the project's cash flows ove;The;NPV profile graphs: (Points: 10);the project's NPV over a range of discount rates.;the project's IRR over a range of discount rates.;the project's cash flows over a range of NPVs.;the project's IRR over a range of NPVs.;Question;2. 2.Which of the following statements is false? (Points: 10);The IRR investment rule will identify the correct decision in many, but not;all, situations.;By setting the NPV equal to zero and solving for r, we find the IRR.;If you are unsure of your cost of capital estimate, it is important to;determine how sensitive your analysis is to errors in this estimate.;The simplest;investment rule is the NPV investment rule.;Question;3. 3.Which of the following statements is false? (Points: 10);In general, the IRR;rule works for a stand-alone project if all of the project's positive cash;flows precede its negative cash flows.;There is no easy fix for the IRR rule when there are multiple IRRs.;The payback rule is primarily used because of its simplicity.;No investment rule that ignores the set of alternative investment;alternatives can be optimal.;Question;4. 4.You are trying to decide between three mutually exclusive;investment opportunities. The most appropriate tool for identifying the;correct decision is: (Points: 10);NPV.;profitability index.;IRR.;incremental IRR.;Question;5. 5.Which of the following statements is false? (Points: 10);When evaluating a;capital budgeting decision, the correct tax rate to use is the firm's;average corporate tax rate.;To determine the capital budget, firms analyze alternative projects and;decide which ones to accept through a process called capital budgeting.;A new product typically has lower sales initially, as customers gradually;become aware of the product.;Sunk costs have been or will be paid regardless of the decision whether or;not to proceed with the project.;Question;6. 6.Which of the following statements is false? (Points: 10);We begin the capital budgeting process by determining the incremental;earnings of a project.;The marginal corporate tax rate is the tax rate the firm will pay on an;incremental dollar of pre-tax income.;Investments in plant;property, and equipment are directly listed as expense when calculating;earnings.;The opportunity cost of using a resource is the value it could have;provided in its best alternative use.;Question;7. 7.Ford Motor Company is considering launching a new line of;plug-in electric SUVs. The heavy advertising expenses associated with the;new SUV launch would generate operating losses of $35 million next year.;Without the new SUV, Ford expects to earn pre-tax income of $80 million;from operations next year. Ford pays a 30% tax rate on its pre-tax;income. The amount that Ford Motor Company owes in taxes next year;without the launch of the new SUV is closest to __________. (Points: 10);$24.0 million;$56.0 million;$31.5 million;$13.5 million;Question;8. 8.Which of the following cash flows are relevant incremental;cash flows for a project that you are currently considering investing in?;(Points: 10);The tax savings;brought about by the project's depreciation expense;The cost of a marketing survey you conducted to determine demand for the;proposed project;Interest payments on debt used to finance the project;Research and development expenditures you have made;Question;9. 9.Which of the following questions is false? (Points: 10);Net Working Capital = Current Assets - Current Liabilities.;Because depreciation is not a cash flow, we do not include it in the cash;flow forecast.;Tax loss carry backs;allow corporations to take losses during the current year and use them to;offset income in future years.;Earnings are an accounting measure of firm performance.;Question;10. 10.Which of the following statements is false? (Points: 10);We can use scenario analysis to evaluate alternative pricing strategies for;our project.;Scenario analysis considers the effect on NPV of changing multiple project;parameters.;The difference between the IRR of a project and the cost of capital tells;you how much error in the cost of capital it would take to change the;investment decision.;Scenario analysis;breaks the NPV calculation into its component assumptions and shows how the;NPV varies as each one of the underlying assumptions change.

Paper#49326 | Written in 18-Jul-2015

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