In regard to the NPV method, which of the statements below is TRUE? A) In the NPV model, if two projects are being compared, the one with the highest IRR is selected. B) In the NPV model, the present cash flows are discounted at the rate r, the cost of capital. C) In the NPV […]
In the NPV model, all cash flows are stated ________. A) in future value dollars, and the total inflow is “netted” against the outflow to see if the net amount is positive or negative B) in present value or current dollars, and the outflow is “netted” against the total inflow to see if the gross […]
For public U.S. nonfinancial firms over the years 1980-2000, the composite market-to-book equity ratio generally: a. increased from 1980-2000 b. decreased from 1980-2000 c. remained stable from 1980-2000 ANSWER A
The capital budgeting decision model that utilizes all the discounted cash flow of a project is the ________ model, which is one of the single most important models in finance. A) net present value (NPV) B) internal rate of return (IRR) C) profitability index (PI) D) discounted payback period ANSWER Answer: A
The net present value of an investment is ________. A) the present value of all benefits (cash inflows) B) the present value of all benefits (cash inflows) minus the present value of all costs (cash outflows) of the project C) the present value of all costs (cash outflows) of the project D) the present value […]
There are two ways to correct for projects with unequal lives when using the NPV approach. Which of the answers below is one of these ways? A) One way is to find a common life, without the need to extend the projects to the least common multiple of their lives. B) One way is to […]
Which of the following may be TRUE regarding mutually exclusive capital budgeting projects? A) There is need for only one project, and both projects can fulfill that current need. B) By using funds for one project, there are not enough funds available for the other project. C) There is a scarce resource that both projects […]
Projects are mutually exclusive if picking one project eliminates the ability to pick the other project. This mutually exclusive situation can arise for different reasons. Which of the statements below is NOT one of these reasons? A) One project will always have a negative NPV. B) There is a scarce resource that both projects would […]
Factoring accounts receivable is relatively an inexpensive source of unsecured short-term funds that allows firms to turn accounts receivable immediately into cash. Indicate whether the statement is true or false ANSWER FALSE
Which groups of U.S. nonfinancial firms have the highest composite proportions of PP&E to TA? a. S&P Industrials b. S&P MidCaps c. S&P SmallCaps d. S&P Transports and Utilities ANSWER D