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FINC400
Week 5 Quiz” for
FINC400 I004 Sum 13

Question 1 of 25

4.0 Points

In determining the
appropriate discount rate for an individual project, the financial manager will
be most influenced by the

A.expected
value.

B.internal
rate of return.

C.standard
deviation.

D.coefficient
of variation.

Question 2 of 25

4.0 Points

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

4.0 Points

Capital rationing

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

4.0 Points

Capital budgeting is
only a concern of finance and accounting personnel.

A.
True

B.
False

Question 5 of 25

4.0 Points

Even though one project
may have superior cash flows, top management may sometimes choose a project
that inflates earnings instead of cash flow.

A.
True

B.
False

Question 6 of 25

4.0 Points

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

4.0
Points

The selection of a mutually
exclusive project means that all other projects with a positive net present
value may also be selected.

A. True

B. False

Question 8 of 25

4.0 Points

The cost of capital is
assumed to contain no risk for the firm.

A.
True

B.
False

Question 9 of 25

4.0 Points

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

4.0 Points

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.

A.
True

B.
False

Question 11 of 25

4.0 Points

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.

A.
True

B.
False

Question 12 of 25

4.0
Points

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

4.0 Points

Regardless of risk, no
projects should be accepted unless they earn more than the firm’s weighted
average cost of capital.

A.
True

B.
False

Question 14 of 25

4.0 Points

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

4.0 Points

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

4.0 Points

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

4.0 Points

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

4.0 Points

The capital budgeting
decisions of a firm will have no effect on the share price of the common stock.

A.
True

B.
False-

Question 19 of 25

4.0 Points

The payback method
considers all cash inflows.

A.
True

B.
False

uestion 20 of 25

4.0 Points

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

4.0 Points

In most capital
budgeting decisions the emphasis should be on reported earnings rather than
cash flows.

A.
True

B.
False

uestion 22 of 25

4.0 Points

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

4.0 Points

The internal rate of
return is the interest rate that equates the cash outflows of an investment
with the subsequent inflows.

A.
True

B.
False

Question 24 of 25

4.0 Points

Simulation models allow
the analyst to test possible changes in the variables used in the model.

A.
True

B.
False

uestion 25 of 25

4.0 Points

The first step in the
capital budgeting process is

A.collection
of data.

B.idea
development.

C.assign
probabilities.

D.determine
cashflow.

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