1. True or False The current yield is usually equal to the yield to maturity.
2. True or False Earnings announcements are often used by investors to revise or refine their forecast of future cash flows.
3. True or False Yield to maturity and the yield to call are usually different for most callable corporate bonds.
4. True or False The profitability index alleviates the reinvestment rate assumption by assuming the cash flows from the investment are reinvested at the firms cost of capital.
5. True or False Ordinary annuities are common with leases and premiums paid to insurance companies because these cash flows usually occur at the beginning of the period.
6. True or False When companies have daily cash flows that occur over the year rather than at any single point in time, analystoften use mid-year cash flow discounting to approximate the daily cash flows.
7. True or False Assuming the same risk, the present value of $100 per year forever is more valuable than the present value of $100 the first year and growing a 4% forever thereafter.
8. True or False Internal rate of return is the preferred method to adjust for unequal lives.
9. True or False The net present value measures an investments total contribution to shareholder wealth while the profitability index measures wealth creation per dollar invested.
10. True or False The investment with the highest equivalent annuity will have the highest net present value of total cash flows if all competing investments are repeated to infinity or to a comparable time horizon at which the lives of all competing investments end.
11. True or False XYZ Company is comparing a 10-year project with a 20-year project. When calculating an equivalent annuity for the project with a 10-year life, XYZ should calculate the present value of the project and divide this NPV by the annuity factor (PVIF) for 20 years.
12. True or False Failure to recognize potential increases in indirect benefits will lead to overestimation of the projects profitability.
13. True or False All single amount problems involve finding either-- the present value, the future value, the rate of return, or the number of periods.
14. True or False Annuity dues are constant and consistent payments that occur at the end of each investment period.
15. True or False Businesses in very highly competitive markets typically have a positive accounting profit and but close to zero positive economic profit.
16. True or False Competitive advantage is the elimination of some of the conditions for perfect competition so that economic profit is possible.
17. True or False Capital budgeting much like strategic planning begins with the establishing of goals.
18. True or False To continue delivering their missions, many non-profit organizations (while working for social causes) seek to maintain or increase wealth as if they were profit seeking businesses.
19. True or False It is uncommon for different stages of the value chain (from the purchase of raw materials, producing the product, to selling the product) to be performed in different part of the world.
20. True or False For two projects of equal risk and equal size, a payback period of 4 is better than a payback period of 1.6.
21. True or False Sunk costs are associated with future expenditures and are therefore relevant to the capital budgeting decision.
22. True or False For two projects of equal risk and equal size, a profitability index of 1.6 is better than a profitability index of 1.4 (all other variables the same)
23. True or False For two projects of equal risk and equal size, an IRR of 12% is better than an IRR or 14% (all other variables the same)
24. True or False When depreciation is subtracted as a cash outflow before the tax computation it must be added back to get cash flow from operations
25. True or False Perfectly competitive markets usually have identical products, identical cost and one very large producer (with market power).
26. True or False In some industries an economic profit may be earned because the customers are less price-sensitive (like medical services).
27. True or False Arbitrage ensures that equal cash flows (of equal risk) sell at equal prices and unequal cash flows (of equal risk) sell at equal rates of return once arbitrage has worked to adjust the prices.