363 quiz
Question 1
When a project 's NPV exceeds zero,
The project should be accepted without any further consideration, assuming we are confident that the cash flows and the required rate of return have been properly estimated.
Question 2
Which of the following capital budgeting techniques does not adjust for the riskiness of the cash flows?
Payback
Question 3
A(n) ____ is the return on the best alternative use of an asset, the highest return that will not be earned if funds are not invested in a particular project. opportunity cost
Question 4
Tapley Acquisition Inc. is considering the purchase of Target Company. The acquisition would require an initial investment of $190,000, but Tapley 's after-tax net cash flows would increase by $30,000 per year and remain at this new level forever. Assume the required rate of return is 15 percent. Should Tapley buy Target?
Yes, because the NPV = $10,000.
Question 5
Suppose the firm 's required rate of return is stated in nominal terms, but the project 's expected cash flows are expressed in real dollars. In this situation, other things held constant, the calculated NPV would
Be biased downward.
Question 6
The post-audit is used to
Only answers a and b are correct.
Question 7 most correct?
Sensitivity analysis is incomplete because it fails to consider the range of likely values of key variables as reflected in their probability distributions.
Question 8
Louisiana Enterprises, an all-equity firm, is considering a new capital investment. Analysis has indicated that the proposed investment has a beta of 0.5 and will generate an expected return of 7 percent. The firm currently has a required return of 10.75 percent and a beta of 1.25. The investment, if undertaken, will double the firm 's total assets. If kRF = 7 percent and the market return is 10 percent, should the firm undertake the investment? (Choose the best answer.)
Correct Answer:
No; the expected return of the asset (7%) is
When a project 's NPV exceeds zero,
The project should be accepted without any further consideration, assuming we are confident that the cash flows and the required rate of return have been properly estimated.
Question 2
Which of the following capital budgeting techniques does not adjust for the riskiness of the cash flows?
Payback
Question 3
A(n) ____ is the return on the best alternative use of an asset, the highest return that will not be earned if funds are not invested in a particular project. opportunity cost
Question 4
Tapley Acquisition Inc. is considering the purchase of Target Company. The acquisition would require an initial investment of $190,000, but Tapley 's after-tax net cash flows would increase by $30,000 per year and remain at this new level forever. Assume the required rate of return is 15 percent. Should Tapley buy Target?
Yes, because the NPV = $10,000.
Question 5
Suppose the firm 's required rate of return is stated in nominal terms, but the project 's expected cash flows are expressed in real dollars. In this situation, other things held constant, the calculated NPV would
Be biased downward.
Question 6
The post-audit is used to
Only answers a and b are correct.
Question 7 most correct?
Sensitivity analysis is incomplete because it fails to consider the range of likely values of key variables as reflected in their probability distributions.
Question 8
Louisiana Enterprises, an all-equity firm, is considering a new capital investment. Analysis has indicated that the proposed investment has a beta of 0.5 and will generate an expected return of 7 percent. The firm currently has a required return of 10.75 percent and a beta of 1.25. The investment, if undertaken, will double the firm 's total assets. If kRF = 7 percent and the market return is 10 percent, should the firm undertake the investment? (Choose the best answer.)
Correct Answer:
No; the expected return of the asset (7%) is