Capital budgeting involves how companies spend

Select one:

a. Day to day resources.

b. Money raised in capital markets.

c. Expenses only.

d. Large sums on infrequent projects.

Which of the following is not used in the development of cash flow estimates for capital projects?

Select one:

a. opportunity costs

b. financing costs

c. depreciation costs

d. taxes

e. overhead costs

When the NPV and IRR rules produce conflicting investment decisions, then the

Select one:

a. NPV rule is superior.

b. IRR rule is superior.

c. firm should be indifferent between the IRR rule and NPV rule.

d. payback period rule should be used.

e. a and d

According to the incremental cash flow principle, a firm should

Select one:

a. include variable costs and fixed costs.

b. exclude variable costs and fixed costs in the projects cash flows.

c. include variable costs and exclude fixed costs in the projects cash flows.

d. include sunk costs in the projects cash flows.

e. exclude opportunity costs in the projects cash flows.

The present value of the cash flows expected to come from owning a share of stock

Select one:

a. is the maximum price an investor should be willing to pay for the share.

b. is the minimum price an investor should be willing to pay for the share.

c. is not related to the price that an investor should be willing to pay for the share.

d. all of the above

The net present value method assumes that the cash flows over the life of the project are reinvested at

Select one:

a. the projects internal rate of return.

b. the risk-free rate.

c. the market capitalization rate.

d. the firms cost of capital.

If a net present value analysis for a normal project gives an NPV greater than zero, an internal rate of return calculation on the same project would yield an internal rate of return ____ the firms cost of capital.

Select one:

a. greater than

b. less than

c. equal to

d. cannot be determined from the information given

Sunk costs

Select one:

a. cannot be estimated accurately.

b. represent an initial period of cash flow of an capital budgeting project.

c. have been incurred in prior periods.

d. none of the above