Question 1 The process of selecting among potential major corporate investments

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Question 1 The process of selecting among potential major corporate investments is called capital budgeting. True False

Question 2 The goal of the capital budgeting decisions is to select capital projects that will decrease the value of the firm. True False

Question 3 When two projects are mutually exclusive, accepting one project implicitly eliminates the other. True False

Question 4 Accepting a positive-NPV project increases shareholder wealth. True False

Question 5 The payback period is useful because it takes into account all expected future cash flows. True False

Question 6 The difference between the present value of an investment and its cost is the: net present value; internal rate of return; payback period; profitability index.

Question 7 The length of time required for an investment to generate cash flows sufficient to recover the initial cost of the investment is called the: net present value; internal rate of return; payback period; profitability index.

Question 8 The discount rate that makes the net present value of an investment exactly equal to zero is called the: external rate of return; internal rate of return; profitability index; equalizer.

Question 9 An investment is acceptable if its IRR: is exactly equal to its net present value (NPV); is exactly equal to zero; is exactly equal to 100%; exceeds the required rate of return.

Question 10 The payback period rule accepts all investment projects in which the payback period for the cash flows is: greater than one; greater than the cutoff point; less than the cutoff point; positive.

Question 11 Riggs, Inc. management is planning to spend $650,000 on a new marketing campaign. They estimate this will result in additional cash flows of $325,000 over the next three years. If the cost of capital is 17.5 percent, what is the NPV of this investment?

Question 12 Kingston, Inc. management is considering purchasing a new machine at a cost of $2,500,000. They expect this equipment to produce cash flows of $850,000 over the next five years. The new machine can be salvaged for $100,000 at the end of five years. If the cost of capital is 15 percent, what is the NPV of this investment?

Question 13 Kingston, Inc. management is considering purchasing a new machine at a cost of $4,250,000. They expect this equipment to produce cash flows of $1,250,000 over the next five years. The machine can be sold for $120,291 at the end of five years. What is the IRR of this investment?

Question 14 Morningside Bakeries has recently purchased equipment at a cost of $1,050,000. The firm expectes to generate cash flows of $500,000 from this equipment over the next four years. What is the payback period for this project?

Explanation / Answer

Question 1 The process of selecting among potential major corporate investments is called capital budgetin- True

Question 2 The goal of the capital budgeting decisions is to select capital projects that will decrease the value of the firm. - False

Question 3 When two projects are mutually exclusive, accepting one project implicitly eliminates the other - True

Question 4: Accepting a positive-NPV project increases shareholder wealth - True

Question 5 The payback period is useful because it takes into account all expected future cash flows - False

Question 6 The difference between the present value of an investment and its cost is the: net present value

Question 7 The length of time required for an investment to generate cash flows sufficient to recover the initial cost of the investment is called the payback period

Question 8 The discount rate that makes the net present value of an investment exactly equal to zero is called the:internal rate of return

Question 9 An investment is acceptable if its IRR exceeds the required rate of return

Question 10 The payback period rule accepts all investment projects in which the payback period for the cash flows is less than the cutoff point

Note: We have answered 10 True/False Questions. Kindly post remaining seperately for experts to answer

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