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Question;191. Some firms use the payback period as a decision;criterion or as a supplement to sophisticated decision techniques, because;A) it explicitly considers the time value;of money.;B) it can be viewed as a measure of risk;exposure because of its focus on liquidity.;C) the determination of the required payback;period for a project is an objectively determined criteria.;D) none of the above.;192. A firm is evaluating a proposal which has an;initial investment of $35,000 and has cash flows of $10,000 in year 1, $20,000;in year 2, and $10,000 in year 3. The payback period of the project is;A) 1 year.;B) 2 years.;C) between 1 and 2 years.;D) between 2 and 3 years.;193. If;the NPV is greater than the initial investment, a project should be accepted.;194. If the NPV is greater than $0.00, a project should;be accepted.;195. The NPV of an project with an initial;investment of $1,000 that provides after-tax operating cash flows of $300 per year for four;years where the firm's cost of capital is 15 percent is $856.49.;196. The NPV of an project with an initial;investment of $1,000 that provides after-tax operating cash flows of $300 per year for four;years where the firm's cost of capital is 15 percent is $143.51.;197. The NPV of an project with an initial;investment of $1,000 that provides after-tax operating cash flows of $300 per year for four;years where the firm's cost of capital is 15 percent is-$143.51.;198. The risk-adjusted discount rate (RADR) is the risk-adjustment;factor that represents the percent of estimated cash inflows that investors;would be satisfied to receive for certain rather than the cash inflows that are;possible for each year.;199. The risk-adjusted discount rate (RADR) is the rate of return;that must be earned on a given project to compensate the firm's owners;adequately, thereby resulting in the maintenance or improvement of share price;200. A market risk-return function is a graphical presentation of the;discount rates associated with each level of project risk.;201. Risk-adjusted discount rates (RADRs) are the risk-adjustment;factors that represent the percent of estimated cash inflows that investors;would be satisfied to receive for certain rather than the cash inflows that are;possible for each year.;202. What is the NPV for the following project if its;cost of capital is 15 percent and its initial after tax cost is;$5,000,000 and it is expected to provide after-tax operating cash inflows of $1,800,000 in year 1;$1,900,000 in year 2, $1,700,000 in year 3 and $1,300,000 in year 4?;A) $1,700,000.;B) $371,764.;C) ($137,053).;D) None of the above.;203. What;is the NPV for the following project if its cost of capital is 0 percent;and its initial after tax cost is $5,000,000 and it is expected to;provide after-tax;operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2;$1,700,000 in year 3 and $1,300,000 in year 4?;A) $1,700,000.;B) $371,764.;C) $137,053.;D) None of the above.;204. What;is the NPV for the following project if its cost of capital is 12 percent and;its initial after tax cost is $5,000,000 and it is expected to provide after-tax;operating cash flows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000;in year 3 and ($1,300,000) in year 4?;A) $(1,494,336).;B) $1,494,336.;C) $158,011.;D) Two of the above.;205. The;amount by which the required discount rate exceeds the risk-free rate is called;A) the opportunity cost.;B) the risk premium.;C) the risk equivalent.;D) the excess risk.;206. A sophisticated capital budgeting technique that;can be computed by solving for the discount rate that equates the present value;of a projects inflows with the present value of its outflows is called internal;rate of return;207. If its IRR is greater than $0.00, a;project should be accepted.;208. If its IRR is greater than 0 percent, a;project should be accepted.;209. If its IRR is greater than the cost of;capital, a project should be accepted.;210. A firm's investment opportunities schedule (IOS) is;a graphical presentation of the firm's collection of project IRRs in descending;order against the total dollar investment.;211. Real options are opportunities that are embedded in;capital budgeting projects that enable managers to alter their cash flows and;risks in a way that affects project acceptability.;212. Consider the following projects, X and Y, where the;firm can only choose one. Project X costs $600 and has cash flows of $400 in;each of the next 2 years. Project Y also costs $600, and generates cash flows;of $500 and $275 for the next 2 years, respectively. Which investment should;the firm choose if the cost of capital is 10 percent?;A) Project X.;B) Project Y.;C) Neither.;D) Not enough information to tell.;213. Consider;the following projects, X and Y where the firm can only choose one. Project X;costs $600 and has cash flows of $400 in each of the next 2 years. Project B;also costs $600, and generates cash flows of $500 and $275 for the next 2;years, respectively. Which investment should the firm choose if the cost of;capital is 25 percent?;A) Project X.;B) Project Y.;C) Neither.;D) Not enough information to tell.;214. Tangshan Mining Company is considering investing in;a new mining project. The firm's cost of capital is 12 percent and the project;is expected to have an initial after tax cost of $5,000,000. Furthermore, the;project is expected to provide after-tax operating cash flows of $2,500,000 in year 1;$2,300,000 in year 2, $2,200,000 in year 3 and ($1,300,000) in year 4?;(a) Calculate;the project's NPV.;(b) Calculate;the project's IRR.;(c) Should;the firm make the investment?;Table 9.10;A firm must choose from six capital;budgeting proposals outlined below. The firm is subject to capital rationing;and has a capital budget of $1,000,000, the firm's cost of capital is 15;percent.;215. Using the internal rate of return approach to;ranking projects, which projects should the firm accept? (See Table 9.10);A) 1, 2, 3, 4, and 5;B) 1, 2, 3, and 5;C) 2, 3, 4, and 6;D) 1, 3, 4, and 6;216. Using;the net present value approach to ranking projects, which projects should the;firm accept? (See Table 9.10);A) 1, 2, 3, 4, and 5;B) 1, 2, 3, 5, and 6;C) 2, 3, 4, and 5;D) 1, 3, 5, and 6;217. When;the net present value is negative, the internal rate of return is ________ the;cost of capital.;A) greater than;B) greater than or equal to;C) less than;D) equal to;218. A;firm is evaluating two independent projects utilizing the internal rate of;return technique. Project X has an initial investment of $80,000 and cash;inflows at the end of each of the next five years of $25,000. Project Z;has a initial investment of $120,000 and cash inflows at the end of;each of the next four years of $40,000. The firm should;A) accept both if the cost of capital;is at most 15 percent.;B) accept only Z if the cost of capital;is at most 15 percent.;C) accept only X if the cost of capital;is at most 15 percent.;D) none of the above

Paper#50976 | Written in 18-Jul-2015

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