What are the two most popular forms of capital budgeting decision rules in practice? A) IRR and payback period B) profitability index and payback period C) IRR and NPV D) NPV and profitability index ANSWER C
Date: September 19th, 2020
The overall goal in sizing up each of the external and internal factors is to: A) determine the competitive position of the firm relative to its competitors. B) increase the value of the enterprise. C) assess the company’s strengths and weaknesses. D) make better investment decisions. ANSWER B
Date: September 19th, 2020
Identify methods that firms use to establish hurdle rates for capital projects. What will be an ideal response? ANSWER Firms use many techniques to establish hurdle rates. First, if they have multiple and distinct business divisions, they may use industry averages for that type of business. Or, they may have historical reference points […]
Date: September 19th, 2020
The left side of the balance sheet should represent investments made by the firm and the right side should represent the sources of financing. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Which of the following is NOT a common reason for capital rationing? A) The firm puts a limit on the amount of its investments. B) Creditors impose capital rationing on firms due to poor performance. C) Senior executives may be reluctant to issue additional debt, thus limiting capital expenditures. D) All of the above are […]
Date: September 19th, 2020
We should expect the (weighted) average of all hurdle rates within a firm to be approximately equal to the overall WACC Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
A revolving credit agreement is a form of financing consisting of short-term, unsecured promissory notes issued by firms with a high credit standing. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
The economic size-up involves: A) the relationship between overall economic activity and the industry’s performance assessment of the economy. B) identifying the current business cycle stage. C) anticipation of the interest rate change. D) All of the above. ANSWER D
Date: September 19th, 2020
Compensating balance is a checking account balance equal to a certain percentage of the amount borrowed from a bank under a line-of-credit or revolving credit agreement. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
If capital projects are mutually exclusive, which of the following statements is TRUE? A) Acceptance of one project means the firm will NOT reject the other mutually exclusive projects. B) The IRR rule still applies as a decision-making process. C) The profitability index rule will Be inconsistent with the NPV rule when choosing among mutually […]
Date: September 19th, 2020
