Cash flows that could be realized from the best alternative use of an owned asse
ID: 2707242 • Letter: C
Question
Cash flows that could be realized from the best alternative use of an owned asset are called
A) incremental costs.
B) lost resale opportunities.
C) opportunity costs.
D) sunk costs.
The change in net working capital when evaluating a capital budgeting decision is
A) the change in current liabilities minus the change in current assets.
B) the increase in current assets.
C) the increase in current liabilities.
D) the change in current assets minus the change in current liabilities.
The basic variables that must be considered in determining the initial investment associated with a capital expenditure are all of the following EXCEPT
A) incremental annual savings produced by the new asset.
B) cost of the new asset.
C) proceeds from the sale of the existing asset.
D) taxes on the sale of an existing asset.
The book value of an asset is equal to the
A) fair market value minus the accounting value.
B) original purchase price minus annual depreciation expense.
C) original purchase price minus accumulated depreciation.
D) depreciated value plus recaptured depreciation.
In the context of capital budgeting, risk generally refers to
A) the degree of variability of the cash inflows.
B) the degree of variability of the initial investment.
C) the chance that the net present value will be greater than zero.
D) the chance that the internal rate of return will exceed the cost of capital.65) Important types of risk in an international capital budgeting context include all of the following EXCEPT
A) exchange rate risk.
B) political risk.
C) appropriation risk.
D) all of the above are correct.
The amount by which the required discount rate exceeds the risk-free rate is called
A) the opportunity cost.
B) the risk premium.
C) the risk equivalent.
D) the excess risk.
The ________ reflects the return that must be earned on the given project to compensate the firm's owners adequately according to the project's variability of cash flows.
A) internal rate of return
B) cost of capital
C) risk-adjusted discount rate
D) average rate of return
If a firm has a limited capital budget and too many good capital projects to fund them all, it is said to be facing the problem of
A) constrained capital.
B) wealth optimization.
C) capital rationing.
D) profitability.
________ costs are a function of volume, not time.
A) Fixed operating
B) Semi-variable
C) Variable
D) Fixed financial
The firm's ________ is the level of sales necessary to cover all operating costs, i.e., the point at which EBIT = $0.
A) cash breakeven point
B) financial breakeven point
C) operating breakeven point
D) total breakeven point
Which of the following types of firms are most likely NOT to payout cash dividends?
A) Rapidly growing firms
B) Firms with modest growth
C) Large, mature firms
D) International Corporations
The payment of cash dividends to corporate stockholders is decided by the
A) management.
B) stockholders.
C) SEC.
D) board of directors.
The problem with a constant-payout-ratio dividend policy from the shareholder's perspective is that
A) it bores the shareholders.
B) if the firm's earnings drop, so does the dividend payment.
C) even when earnings are low, the company must pay a fixed dividend.
D) there is no informational content.
The purpose of a stock split is to
A) affect the firm's capital structure.
B) decrease the dividend.
C) enhance the trading activity of the stock by lowering the market price.
D) increase the market price of the stock.
Net working capital is defined as
A) a ratio measure of liquidity best used in cross-sectional analysis.
B) the portion of the firm's assets financed with short-term funds.
C) current liabilities minus current assets.
D) current assets minus current liabilities.
Explanation / Answer
a) Opportunity costs
b) the change in current liabilities minus the change in current assets
c) incremental annual savings produced by the new asset.
d) original purchase price minus accumulated depreciation.
e) degree of variability of the cash inflows
f) appropriation risk.
g) risk premium.
h) risk-adjusted discount rate
i) capital rationing
j) Variable
k) operating breakeven point
l) Rapidly growing firms
m) board of directors
n) if the firm's earnings drop, so does the dividend payment.
o) enhance the trading activity of the stock by lowering the market price.
p) current assets minus current liabilities.
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