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Quiz 11

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Question 1 (1 point)
Holding all else equal, the profitability index will fall following an increase in the:
  1. cost of capital.
  2. benefit-cost ratio.
  3. IRR.
  4. NPV.
Question 2 (1 point)
The discount rate that equates present value of cash inflows and outflows is called the:
  1. component cost of capital.
  2. weighted average cost of capital.
  3. after-tax weighted average cost of capital.
  4. IRR.
Question 3 (1 point)
Acceptance of investment projects where IRR > MCC:
  1. will increase the value of the firm.
  2. will decrease the value of the firm.
  3. have no impact on the value of the firm.
  4. none of these.
Question 4 (1 point)
Acceptance of new investment projects will increase the value of the firm provided that:
  1. IRR > ROE.
  2. ROE < IRR.
  3. ROE = IRR.
  4. none of these.
Question 5 (1 point)
The change in net cash flows due to an investment project is called:
  1. marginal profit.
  2. marginal revenue.
  3. incremental cash flow.
  4. marginal cash flow.
Question 6 (1 point)
An estimate of the firm's cost of equity capital is:
  1. the market return on common stocks.
  2. the market return on common stocks multiplied by beta, the firm's risk index.
  3. expected dividend yield plus projected growth.
  4. expected dividend yield.
Question 7 (1 point)
The pattern of returns for all potential investment projects is the:
  1. investment opportunity schedule.
  2. marginal cost of capital.
  3. optimal capital budget.
  4. optimal capital structure.
Question 8 (1 point)
Examples of mandatory nonrevenue-producing investments are provided by:
  1. cost reduction projects.
  2. expansion projects.
  3. replacement projects.
  4. safety and environmental projects.
Question 9 (1 point)
Net present value is the:
  1. current-dollar difference between marginal revenues and marginal costs.
  2. change in net cash flows due to an investment project.
  3. change in before-tax cash flows due to an investment project.
  4. change in net after-tax cash flows due to an investment project.
Question 10 (1 point)
When net present value is positive:
  1. the internal rate of return equals the cost of capital.
  2. the internal rate of return exceeds the cost of capital.
  3. the internal rate of return is less than the cost of capital.
  4. the internal rate of return equals zero.
Question 11 (1 point)
The most difficult step in capital expenditure analysis is estimating:
  1. the internal rate of return.
  2. the cost of capital.
  3. the cost of investment.
  4. project cash flows.
Question 12 (1 point)
Cash flows include depreciation:
  1. to account for taxes effects.
  2. as a cash expense.
  3. if accelerated depreciation is chosen.
  4. to reduce projected cash flows.
Question 13 (1 point)
Firms should finance a project if its:
  1. expected cash flow is positive.
  2. net cash flow is positive.
  3. internal rate of return is positive.
  4. net present value is positive.
Question 14 (1 point)
A firm must choose between two projects, X and Y. Project X has the highest net present value, but project Y has the highest profitability index. The firm should choose project Y if:
  1. the firm is a risk seeker.
  2. the firm is risk averse.
  3. the firm has substantial investment resources.
  4. the firm has limited investment resources.
Question 15 (1 point)
If the tax rate is 25% and the prevailing interest rate is 12%, the after tax cost of debt is:
  1. 3%.
  2. 9%.
  3. 16%.
  4. 37%.
Question 16 (1 point)
The crossover discount rate only equates the:
  1. NPV for two or more investments.
  2. IRR for two or more investments.
  3. present value payback period for two or more investments.
  4. all of these.
Question 17 (1 point)
When NPV is positive, the IRR:
  1. is less than the cost of capital.
  2. equals the cost of capital.
  3. exceeds the cost of capital.
  4. none of these.
Question 18 (1 point)
The risk-free rate of return is the investor reward for:
  1. risk-taking.
  2. postponing consumption.
  3. relative stock-price variability.
  4. absolute stock-price variability.
Question 19 (1 point)
The cost of capital is the:
  1. component cost of debt.
  2. component cost of equity.
  3. both A and B.
  4. discount rate.
Question 20 (1 point)
The beta coefficient is:
  1. a relative measure of stock-price variability.
  2. an absolute measure of stock-price variability.
  3. equal to the standard deviation divided by covariance.
  4. none of these.
Copyright 2008, by the Contributing Authors. Cite/attribute Resource. admin. (2009, January 27). Quiz 11. Retrieved November 23, 2009, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/economics/managerial-economics/quiz11.htm. This work is licensed under a Creative Commons License. Creative Commons License