Fin 534 week 7 quiz 6 chapters 10 and 11

This is a multiple choice quiz for FIN/534. I have posted just the correct answers

Quiz 6 Chapters 10 and 11

Question 1

Which of the following statements is CORRECT?

Question 2

Which of the following statements is CORRECT?

Question 3

Assume that the economy is in a mild recession, and as a result interest rates and money costs generally are relatively low. The WACC for two mutually exclusive projects that are being considered is 8%.  Project S has an IRR of 20% while Project L’s IRR is 15%. The projects have the same NPV at the 8% current WACC.  However, you believe that the economy is about to recover, and money costs and thus your WACC will also increase.  You also think that the projects will not be funded until the WACC has increased, and their cash flows will not be affected by the change in economic conditions.  Under these conditions, which of the following statements is CORRECT?

Question 4

Four of the following statements are truly disadvantages of the regular payback method, but one is not a disadvantage of this method.  Which one is NOT a disadvantage of the payback method?

Question 5

Which of the following statements is CORRECT?

Question 6

Which of the following statements is CORRECT?  Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows

Question 7

Which of the following statements is CORRECT?

Question 8

Which of the following statements is CORRECT?

Question 9

Which of the following statements is CORRECT?

Question 10

Which of the following statements is CORRECT?  Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows

Question 11

Which of the following statements is CORRECT?

Question 12

Which of the following statements is CORRECT?  Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows

Question 13

Assume that the economy is enjoying a strong boom, and as a result interest rates and money costs generally are relatively high. The WACC for two mutually exclusive projects that are being considered is 12%.  Project S has an IRR of 20% while Project L’s IRR is 15%. The projects have the same NPV at the 12% current WACC.  However, you believe that the economy will soon fall into a mild recession, and money costs and thus your WACC will soon decline.  You also think that the projects will not be funded until the WACC has decreased, and their cash flows will not be affected by the change in economic conditions.  Under these conditions, which of the following statements is CORRECT?

Question 14

Which of the following statements is CORRECT?

Question 15

Which of the following statements is CORRECT?

Question 16

The relative risk of a proposed project is best accounted for by which of the following procedures?

Question 17

Which of the following statements is CORRECT?

Question 18

Rowell Company spent $3 million two years ago to build a plant for a new product.  It then decided not to go forward with the project, so the building is available for sale or for a new product.  Rowell owns the building free and clear–there is no mortgage on it.  Which of the following statements is CORRECT?

Question 19

Which of the following should

be considered when a company estimates the cash flows used to analyze a proposed project?

Question 20

Which of the following statements is CORRECT?

Question 21

A company is considering a new project.  The CFO plans to calculate the project’s NPV by estimating the relevant cash flows for each year of the project’s life (i.e., the initial investment cost, the annual operating cash flows, and the terminal cash flow), then discounting those cash flows at the company’s overall WACC.  Which one of the following factors should the CFO be sure to INCLUDE in the cash flows when estimating the relevant cash flows?

Question 22

Which of the following factors should be included in the cash flows used to estimate a project’s NPV?

Question 23

Which of the following rules is CORRECT for capital budgeting analysis?

Question 24

Currently, Powell Products has a beta of 1.0, and its sales and profits are positively correlated with the overall economy.  The company estimates that a proposed new project would have a higher standard deviation and coefficient of variation than an average company project.  Also, the new project’s sales would be countercyclical in the sense that they would be high when the overall economy is down and low when the overall economy is strong.  On the basis of this information, which of the following statements is CORRECT?

Question 25

Which of the following statements is CORRECT?

Question 26

Which of the following procedures does the text say is used most frequently by businesses when they do capital budgeting analyses?

Question 27

A firm is considering a new project whose risk is greater than the risk of the firm’s average project, based on all methods for assessing risk.  In evaluating this project, it would be reasonable for management to do which of the following?

Question 28

When evaluating a new project, firms should include in the projected cash flows all of the following EXCEPT:

Question 29

Which of the following is NOT a relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project?

Question 30

Suppose Tapley Inc. uses a WACC of 8% for below-average risk projects, 10% for average-risk projects, and 12% for above-average risk projects.  Which of the following independent projects should Tapley accept, assuming that the company uses the NPV method when choosing projects

 

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