1.The decision on capital budgeting using the NPV method may be at risk of being a wrong decision if it is based on inaccurate estimates for

Select one:

a.

the cost of capital and underestimating management's desire for the return of their money.

b.

the cost of capital and the future projections of cash flows.

c.

future projections of cash flows and having unconventional cash flows resulting from this.

d.

the internal rate of return being different from the cost of capital.

2.Consider the capital budgeting decision to be made with the following data about 2 competing projects. Project A has an NPV of -$12 500, and IRR of 3% and a payback period of 3 years. Project B has an NPV of -$12 000, but an IRR of 2% and a payback period of 2 years 10 months. Which project(s) would be chosen on a mutually exclusive basis?

Select one:

a.

Project A

b.

Project A and Project B

c.

Project B

d.

Neither Project A nor Project B

3.ABC Company needs additional equity capital and is considering either an IPO or a private placement. Which of the following is an advantage of raising funds through an IPO?

Select one:

a.

Increased transparency of information.

b.

Investors will pay higher prices for more liquid shares.

c.

Usually faster than private placement.

d.

Lower cost of compliance with ASIC disclosure requirements.

5.Share valuation is more difficult than bond valuation because

Select one:

a.

companies are not obliged to make regular payments to shareholders.

b.

all of these are correct.

c.

the required rate of return on bonds is observable.

d.

bonds have fixed maturity dates.

6.Which of the following strategies would be most suitable for bond investors in a market of rising interest rates

Select one:

a.

sell short term bonds and buy long term bonds with the proceeds.

b.

increase the total amount of funds invested in bonds.

c.

only invest in bonds with short terms to maturity.

d.

only invest in bonds with high yields to maturity.