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1. The ________ considers the project'srisk relative to the firm overall risk.

A. The Objective Approach

B. The Pure Pay Approach

C. The Subjective Approach

D. The Bottom-Up Approach

2. ________ are not tax deductible, so there is no taximpact on the cost of equity.

A. Interest expenses

B. Director's remuneration

C. Dividends

D. All of the above

3. ________ itself is a non-cash expense and it is onlyrelevant because it affects taxes.

A. Depreciation expense

B. Interest expense

C. Capital gain

D. Both A and C

4. Which of the following is correct about AverageAccounting Return

A. Reject the project if the ARR is less than a preset rate

B. Accept the project if the ARR is large than IRR

C. Accept the project if the ARR is greater than a presetrate

D. ARR must be equal to a preset rate for the acceptance of aproject

5. What is the disadvantage of Paybackmethod?

A. Difficult to understand

B. No adjustment for uncertainty of later cash flows

C. Ignores the time value of money

D. Biased again short-term project

6. Which of the following statement is true about NetPresent Value decision rule?

A. If the NPV is negative, reject the project

B. A negative NPV mean the project will increase the wealth ofthe owners

C. If value of the NPV means the amount of value created for thefirm

D NPV rule does not account for the time value of money

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Patrina Schowalter
Patrina SchowalterLv2
28 Sep 2019

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Related questions

8.1 Is each of the following statements true or false? Explain your answers briefly.

a. Using the same risk-adjusted discount rate to discount all future cash flows ignores the fact that the more distant cash flows are often riskier than cash flows occurring sooner.

b. The cost of capital, or WACC, is not the correct discount rate to use for all projects undertaken by a firm.

c. If you can borrow all of the money you need for a project at 6 percent, the cost of capital for this project is 6 percent.

d. The best way to estimate the cost of debt capital for a firm is to di- vide the interest expense on the income statement by the interest-bearing debt on the balance sheet.

e. One reliable estimate of a privately held firm’s equity beta is the average of the equity betas of several publicly held competitors.

QUESTION 2

  1. Depreciation must be considered when evaluating the incrementaloperating cash flows associated with a capital budgeting projectbecause:

A.

it represents a tax-deductible cash expense.

B.

the firm has a cash outflow equal to the depreciation expenseeach year.

C.

depreciation is a cash flow that doesn't change.

D.

depreciation has an impact on the taxes paid by the firm, whichis a cash flow.

E.

depreciation is a sunk cost.

QUESTION 3

  1. Diversifiable risk includes _____.​

A.

liquidity risk

B.

business risk

C.

maturity risk

D.

political risk

E.

interest rate risk

5 points

QUESTION 4

  1. Which of the following statements is correct?​

A.

A relatively risky future cash outflow should be evaluated usinga relatively high discount rate.

B.

Project risk estimation is independent of the betacoefficient.

C.

If a firm's managers want to maximize the value of the stock,they should concentrate exclusively on the projects' market, orbeta, risk.

D.

If a firm has a beta that is less than 1.0, say 0.9, this wouldsuggest that its assets' returns are negatively correlated with thereturns of most other firms' assets.

E.

If a firm evaluates all projects using the same required rate ofreturn to determine NPVs, then the riskiness of the firm asmeasured by its beta will probably decline over time.

1. Consider Coral Bay Hospital. Which has a greater impact on the NPV - 10% decrease in procedures, 10% decrease in average revenue per procedure, or 10% decrease in salvage value? 10% decrease in procedures

10% decrease in average revenue

10% decrease in salvage value

2. Consider Coral Bay Hospital. A higher payback period indicates a project with lots of liquidity. True False

3. Consider Coral Bay Hospital. If the cost of capital changes to 8%, the project is a/an accept reject Consider Coral Bay Hospital. If we think inflation will be greater than 3%, we should change the cost of capital before doing the inflation sensitivity chart. True False

4. Consider Coral Bay Hospital. If the land’s value changes to $250,000, the project’s NPV True/False

5. Consider Coral Bay Hospital. In the worst case scenario, the NPV is still positive. True False

6. Consider National Rehab Centers. A negative of doing projects in stages is that it can signal to competitors opportunities. True False

7. Consider National Rehab Centers. The inclusion of an abandonment option lowers the coefficient of variation. True False

8. Consider National Rehab Centers. If the initial fixed cost amount changed to $30,000,000, the NPV of the poor scenario will

a. increase and make project B more desirable

b. increase and make project B less desirable

c. decrease and make project B more desirable

d. decrease and make project B less desirable

9. Consider National Rehab Centers. During stage 1, if the chance for a good scenario changed to 30%, stage 1 as a stand alone project is an accept. True False

10. Consider National Rehab Centers. A good stage 1 and high demand in stage two results in a positive NPV. True False

11. Consider Southeastern Homecare. One uses the Hamada equation to see what the beta and cost of equity are under different debt ratio scenarios. True False

12. Consider Southeastern Homecare. If its dividend payout rate changed to 60%, the growth rate would ___ and the cost of equity would ____.

a. increase; increase

b. increase; decrease

c. decrease; increase

d. decrease; decrease

13.Consider Bedford Clinics. The multiple for net patient revenue is about 3. True/False

14. Consider Bedford Clinics. The revenue multiplier approach using historical revenue is good if there is lots of variability in revenues over the years. True False

15. You are considering the purchase of an investment that would pay you $5,000 per year for Years 1-5, $3,000 per year for Years 6-8, and $2,000 per year for Years 9 and 10. If you require a 14%, and the cash flows occur at the end of each year, what is the internal rate of return if the initial outlay is $10,000 and the cash flows are reinvested at the required rate of return?

a. 14%

b. 23%

c. 28%

d. 46%

16. Macy Pharmacy has a project which has the following cash flows. Year 0 = -$200,000 Year 1 = $50,000 Year 2 = $100,000 Year 3 = $150,000 Year 4 = $40,000 Year 5 = $25,000 The cost of capital is 10%. What would happen to the discounted payback if the cost of capital increased to 12%?

a. the discounted payback would increase

b. the discounted payback would decrease

c. the discounted payback would be unchanged

17. A company has determined that its optimal capital structure consists of 40% debt and 60% equity. Given the following information, calculate the firm's weighted average cost of capital. Before-tax cost of debt = 6% Tax rate = 40% Current price = $25 Growth rate = 0% Current dividend (D0) = $2.00

a. 6.0%

b. 6.2%

c. 7.0%

d. 7.2%

e. 8.0%

CORAL BAY:

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