1. Risk varies with project type, and the least risky of the capital projects, in terms of the probability of making less than management's expectations is:

Inventory management

Equipment replacement

New business ventures

Expansion

2. The first step in the capital budgeting process is the identification of the project's:

Cost of capital

Incremental cash flows

Investment requirement

Overall cash flows

3. Incremental cash flows associated with capital budgeting projects can include:

Reductions in labor costs

Reductions in fuel and maintenance costs

Increased profitability

All of the above

4. Which of the following is most correct?

Stand-alone projects with positive NPV's should always be accepted

Mutually exclusive projects with positive NPV's should always be accepted

Projects can be mutually exclusive even if they address totally different business issues.

Both a. and c. are correct.

All of the above are correct.

5. The money needed to get a project started is generally referred to as the initial outlay. It includes all cash outflows:

Before the start of the project and in its first year

Throughout the life of the project

Before or at the start of the project, generally referred to as at time zero

Already spent

6. Projects are said to be mutually exclusive when undertaking one precludes doing the other(s).

True

False

7. The cost of capital is a single rate that reflects the average return paid to investors who provide the firm's capital.

True

False

8. An advantage of the less sophisticated payback method is that it is quick and easy to apply.

True

False

9. A firm's capital is 40% debt and 60% equity. The company's cost of debt is 6% while its cost of equity is 12%. Its cost of capital is 9.6%.

True

False

10. Projects with negative NPVs contribute only minimal positive amounts to shareholder wealth.

True

False

Answer rating: 100% (QA)

1 b 2 b ... View the full answer