Chapter 10 Question 1 Which of the following is NOT true about capital budgeting

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Chapter 10 Question 1 Which of the following is NOT true about capital budgeting. a. It involves identifying projects that will add to the firm's value. b. The large capital investments can be reversed at any time. c. It involves large capital investments. d. It allows the firm's management to analyze potential business opportunities and decide on which ones to undertake. Question 2 Two projects are considered to be contingent projects if a. selecting one would automatically eliminate accepting the other b. none of these c. the acceptance of one project is dependent on the acceptance of the other d. rejection of one project does not eliminate the selection of the other Question 3 Capital rationing implies that a. funding resources exceed funding needs b. none of these c. funding needs exceed funding resources d. funding needs equal funding resources Question 4 The net present value a. will provide a direct measure of how much the firm value will change because of the capital project. b. is consistent with shareholder wealth maximization goal. c. all of these. d. uses the discounted cash flow valuation technique. Question 5 Which one of the following statements about the discounted payback method is NOT true? a. The discounted payback method represents the number of years it takes a project to recover its initial investment. b. The discounted payback method calls for the project to be accepted if the payback period is greater than a target period. c. The expected cash flows from the project are discounted at the cost of capital. d. The discount payback method is a risk indicator. Question 6 Projects that are classified as contingent could be mandatory or optional projects. a. False b. True Question 7 The net present value technique is an approach that goes against the goal of shareholder wealth maximization. a. True b. False Question 8 Accepting a positive-NPV project increases shareholder wealth. a. True b. False Question 9 If the payback period for a project exceeds the firm's threshold period, then the project is accepted a. True b. False Question 10 Unlike the regular payback method, the discounted payback method does not ignore cash flows beyond the firm's threshold period. a. True b. False

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