1) The stage in the capital budgeting process that involves applying the appropr
ID: 2627163 • Letter: 1
Question
1) The stage in the capital budgeting process that involves applying the appropriate capital budgeting techniques to help make a final accept or reject decision is called the _____________ stage.
Answer
follow-up.
selection.
identification.
development.
2) Which one of the following capital-budgeting evaluation techniques is based on finding a discount rate which causes the net present value to be zero?
Answer
net present value
internal rate of return
profitability index
payback
3) A firm
Explanation / Answer
Hi,
Please find the answer as follows:
1) Selection is the correct answer.
Explanation:
It is only during the selection phase that various types of capital budgeting techniques (like NPV and IRR) are used to make an accept or reject decision.
2) Internal Rate of Return is the correct answer.
Explanation:
Internal Rate of Return is the minimum rate of return that a firm must earn in order to accept any project. Basically, it indicates the return where the NPV of the company is 0.
3) Operating Income (EBIT) is the correct answer.
Explanation:
Business Risk is measured by a firm's ability to earn profits from its day to day business operations. EBIT indicates operating income and can thus be used to measure a firm's ability to manage its business risks.
4) The Market Timing Hypothesis is the correct answer.
Explanation:
Taking advantage of low prices at the time of buy-back and issuing securities at the time of high prices is suggested by marketing timing hypothesis. The basis objective is to take obtain benefit from the favorable price movements.
5) Conservative is the correct answer.
Explanation:
A lower degree of operating leverage indicates a lower proportion of debt in the capital structure and hence more equity, suggesting a conserative approach towards the management of capital structure.
6) Sustainable Growth Rate is the correct answer.
Explanation:
Sustainable growth rate indicates a firm's ability to grow without any need for additional financing. Therefore, the mix of debt and equity remain constant.
Thanks.
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