Question one particular 2 away of 2 details | | | Imagine the economy is at a mild economic depression, and as a result interest rates and cash costs generally are comparatively low. The WACC for 2 mutually exclusive jobs that are being deemed is 8%. Project S has an IRR of 20% while Job L’s IRR is 15%.
The assignments have the same NPV at the 8% current WACC. However , you feel that the overall economy is about to recover, and funds costs and thus your WACC will also increase. You also feel that the tasks will not be financed until the WACC has increased, and their cash moves will not be troubled by the difference in economic circumstances.
Under these types of conditions, which usually of the pursuing statements is proper? Answer | | | | | Selected Response: | You must recommend Project S, since at the new WACC it provides the higher NPV. | Right Answer: | You should suggest Project S, because at the new WACC it will have the greater NPV. | | | | | Question a couple of 2 away of 2 factors | | | Which in turn of the subsequent statements is CORRECT? Answer | | | | | Selected Response: | Multiple IRRs can occur only if signs and symptoms of the cash flows change over and over again. | Appropriate Answer: | Multiple IRRs can occur as long as the signs of the money flows transform more than once. | | | | Query 3 two out of two points | | | Which from the following claims is CORRECT? Solution | | | | | Selected Answer: | One benefit of the NPV over the IRR is that NPV assumes that cash runs will be reinvested at the WACC, whereas IRR assumes that cash goes are reinvested at the IRR. The NPV assumption is normally more appropriate. | Correct Response: | 1 advantage of the NPV in the IRR is that NPV takes on that funds flows will probably be reinvested in the WACC, whereas IRR assumes that cash flows happen to be reinvested at the IRR. The NPV supposition is generally more appropriate. | | | | Question 4 2 away of 2 factors | | | Which of the next statements is proper? Answer | | | | | Selected Answer: | One particular defect with the IRR method is that it presumes that the money flows to get received via a project could be reinvested with the IRR alone, and that presumption is often not really valid. | Correct Solution: | One defect in the IRR technique is that it takes on that the funds flows being received via a project may be reinvested at the IRR by itself, and that assumption is often certainly not valid. | | | | | Question a few 2 out of 2 points | | | Which of the pursuing statements is proper?
Assume that the project staying considered has normal money flows, with one output followed by a number of inflows. Answer | | | | | Picked Answer: | If a project has typical cash flows and its IRR exceeds it is WACC, then this project’s NPV must be confident. | Right Answer: | If a task has typical cash goes and its IRR exceeds it is WACC, then a project’s NPV must be confident. | | | | | Problem 6 two out of two points | | | Assume that our economy is savoring a strong boom, and as a result interest rates and funds costs generally are relatively high.
The WACC for two mutually exclusive assignments that are being regarded as is 12%. Project S has an IRR of twenty percent while Task L’s IRR is 15%. The projects have the same NPV at the 12% current WACC. However , you think that the economic climate will soon fall under a mild downturn, and funds costs and so your WACC will soon drop. You also feel that the projects will not be financed until the WACC has lowered, and their funds flows will never be affected by the change in financial conditions. Below these circumstances, which in the following transactions is CORRECT?
Solution | | | | | Picked Answer: | You should recommend Project T, because with the new WACC it will have the greater NPV. | Correct Solution: | You must recommend Job L, since at the new WACC it provides the higher NPV. | | | | | Problem 7 a couple of out of 2 points | | | Which from the following statements is CORRECT? Imagine the job being regarded as has usual cash goes, with a single outflow then a series of inflows. Answer | | | | | Selected Answer: | The greater the WACC used to estimate the NPV, the lower the calculated NPV will be. Right Answer: | The higher the WACC accustomed to calculate the NPV, the reduced the determined NPV will be. | | | | | Problem 8 a couple of out of 2 points | | | Which with the following transactions is CORRECT? Answer | | | | | Picked Answer: | An NPV profile graph is designed to provide decision producers an idea about how a project’s contribution for the firm’s benefit varies with the cost of capital. | Correct Answer: | An NPV profile graph is designed to give decision makers an idea about how a project’s contribution for the firm’s worth varies with the cost of capital. | | | | Question being unfaithful 2 away of 2 details | | | Which of the subsequent statements is CORRECT? Answer | | | | | Selected Response: | If two assignments have the same expense, and if their particular NPV users cross inside the upper right installment, then the project with the decrease IRR likely has more of its money flows coming in the old age. | Correct Answer: | If two projects have the same cost, of course, if their NPV profiles get across in the rightmost top corner quadrant, then a project with all the lower IRR probably recieve more of its cash goes coming in the later years. | | | | Problem 10 two out of two points | | | Which of the following claims is CORRECT? Imagine the project being considered has regular cash moves, with one outflow then a series of inflows. Answer | | | | | Selected Response: | If the project’s NPV is less than zero, then the IRR has to be less than the WACC. | Correct Solution: | If a project’s NPV is less than zero, then their IRR must be less than the WACC. | | | | | Question 10 2 away of 2 details | | | Which in turn of the next statements is proper?
Answer | | | | | Selected Answer: | The NPV method assumes that cash moves will be reinvested at the WACC, while the IRR method takes on reinvestment at the IRR. | Correct Answer: | The NPV approach assumes that cash moves will be reinvested at the WACC, while the IRR method presumes reinvestment on the IRR. | | | | | Question doze 0 out of 2 factors | | | Which in turn of the pursuing statements is proper? Assume that the project becoming considered has normal cash flows, with one outflow followed by several inflows.
Response | | | | | Chosen Answer: | If a business uses the same payback need to evaluate all projects, say it requires a payback of 4 years or significantly less, then the organization will are likely to reject tasks with relatively short lives and agree to long-lived jobs, and this will cause its risk to increase as time passes. | Appropriate Answer: | One drawback of the regular repayment for evaluating projects is the method would not properly take into account the time value of money. | | | | | Question 13 2 away of 2 items | | | Which in turn of the following statements is proper?
Assume that the project getting considered features normal cash flows, with one outflow followed by several inflows. Solution | | | | | Selected Answer: | A project’s IRR is a discount rate that causes the PV in the inflows to equal the project’s cost. | Appropriate Answer: | A project’s IRR is the discount rate that causes the PV from the inflows to equal the project’s expense. | | | | | Query 14 2 out of two points | | | Which with the following transactions is CORRECT? Solution | | | | | Chosen Answer: | Projects with “normal cash flows can easily have only one real IRR. Correct Answer: | Jobs with “normal cash moves can possess only one true IRR. | | | | | Question 12-15 0 out of 2 details | | | Which usually of the pursuing statements is proper? Answer | | | | | Selected Response: | If the firm uses the cheaper payback method with a needed payback of 4 years, then it encourage more projects than whether it used a normal payback of 4 years. | Accurate Answer: | Multiple IRRs can exist, but not multiple MIRRs. This is certainly one purpose some people benefit the MIRR over the frequent IRR. | | | | | Question 16 0 out of 2 items | | When assessing a new task, firms ought to include in the expected cash flows all of the following EXCEPT: Response | | | | | Picked Answer: | The salvage value of assets used for the task that will be recovered at the end in the project’s lifestyle. | Right Answer: | Previous bills associated with a market test to determine the feasibility in the project, supplied those costs have been expensed for duty purposes. | | | | | Question 18 2 away of 2 items | | | A firm is considering a new project whose risk is more than the risk of the firm’s normal project, based on all options for assessing risk.
In analyzing this job, it would be fair for managing to do which will of the subsequent? Answer | | | | | Selected Solution: | Raise the cost of capital used to measure the project to reflect the higher-than-average risk. | Right Answer: | Increase the expense of capital utilized to evaluate the job to reveal its higher-than-average risk. | | | | | Question 18 2 out of 2 details | | | Which usually of the next statements is CORRECT? Answer | | | | | Selected Answer: | A sunk value is a cost that was incurred and expensed in the past and cannot be restored if the company decides to not go forward together with the project. Right Answer: | A sunk cost is a cost that was incurred and expensed in past times and cannot be recovered in case the firm makes a decision not to go forward with the job. | | | | | Query 19 two out of two points | | | Which in the following claims is CORRECT? Answer | | | | | Selected Answer: | An example of an externality can be described as situation in which a bank opens a new workplace, and that new office causes deposits inside the bank’s different offices to enhance. | Accurate Answer: | An example of an externality can be described as situation where a bank opens a new workplace, and that fresh office causes deposits inside the bank’s various other offices to improve. | | | | Question 20 2 out of 2 details | | | Which will of the following statements is CORRECT? Answer | | | | | Selected Answer: | Ruse analysis can be described as computerized variation of circumstance analysis where input factors are chosen randomly on the basis of their likelihood distributions. | Correct Solution: | Simulation analysis is known as a computerized version of circumstance analysis exactly where input parameters are selected randomly based on their possibility distributions. | | | | | Question twenty one 0 out of 2 factors | | | Which will of the subsequent statements is proper?
Answer | | | | | Selected Response: | The existence of any type of “externality will decrease the calculated NPV versus the NPV that would exist without the outwardness. | Right Answer: | If one of the assets to be used by a potential task is already owned or operated by the organization, and if that asset could be sold or leased to a different firm in case the new project were not taken on, then the net after-tax earnings that could be received should be incurred as a expense to the project under consideration. | | | | | Question twenty two 2 away of 2 items | | | An organization is taking into consideration a new project.
The CFO plans to calculate the project’s NPV by price the relevant funds flows for every year in the project’s your life (i. elizabeth., the initial investment cost, the annual operating cash moves, and the fatal cash flow), then discounting those cash flows with the company’s general WACC. What type of the subsequent factors should the CFO make sure to INCLUDE in the money flows when estimating the kind of cash goes? Answer | | | | | Selected Answer: | The investment in working capital needed to operate the project, whether or not that expenditure will be restored at the end from the project’s existence. Correct Answer: | The investment in working capital required to operate the project, regardless if that investment will be retrieved at the end with the project’s lifestyle. | | | | | Query 23 zero out of two points | | | Which from the following assertions is CORRECT? Solution | | | | | Chosen Answer: | Using accelerated depreciation instead of straight collection normally has no effect on a project’s total projected funds flows nor would it affect the timing of the people cash runs or the resulting NPV in the project. Right Answer: | Using accelerated depreciation instead of straight line normally has the effect of speeding up cash moves and thus raising a project’s forecasted NPV. | | | | | Query 24 zero out of two points | | | Which in the following guidelines is CORRECT intended for capital budgeting analysis? Solution | | | | | Chosen Answer: | If a system is competitive with a few of the business other products, this truth should be integrated into the estimation of the relevant cash runs. However , if the new product is complementary to some of the business other items, this simple fact need not end up being reflected inside the analysis. Accurate Answer: | Only pregressive cash moves, which are the cash flows that would result if the project is definitely accepted, are relevant when coming up with accept/reject decisions. | | | | | Question 25 zero out of 2 points | | | Which one of the following probably would not result in incremental cash goes and thus really should not be included in the capital budgeting analysis for a new product? Answer | | | | | Selected Answer: | Employing some of the firm’s high-quality factory floor space that may be currently unused to produce the proposed new product.
This space could be used for other goods if it is certainly not used for the project under consideration. | Right Answer: | The cost of a report relating to the marketplace for the new product that was completed last year. The results of this research had been positive, plus they led to the tentative decision to go forward with the new product. The cost of the study was incurred and expensed for tax purposes a year ago. | | | | | Problem 26 a couple of out of two points | | | The comparable risk of a proposed project is best made up by which from the following types of procedures?
Answer | | | | | Selected Solution: | Modifying the lower price rate upwards if the project is evaluated to have above-average risk. | Correct Solution: | Changing the lower price rate upward if the task is judged to have above-average risk. | | | | | Question 28 2 away of 2 details | | | Dalrymple Inc. is definitely considering development of a cool product. In considering whether to visit ahead together with the project, which will of the pursuing items ought not to be explicitly considered when funds flows will be estimated?
Solution | | | | | Picked Answer: | The company features spent and expensed pertaining to tax purposes $3 million on study related to the modern detergent. These funds may not be recovered, however the research might benefit other projects that could be proposed in the future. | Correct Answer: | The company provides spent and expensed intended for tax purposes $3 , 000, 000 on analysis related to the new detergent. These kinds of funds may not be recovered, but the research might benefit various other projects that could be proposed in the foreseeable future. | | | | | Issue 28 two out of 2 points | | Which of the following should be considered every time a company estimations the cash moves used to examine a proposed project? Response | | | | | Selected Answer: | The new task is likely to reduce product sales of one of the company’s existing products by simply 5%. | Correct Solution: | The new project is usually expected to reduce sales of one of the industry’s existing products by 5%. | | | | | Query 29 a couple of out of two points | | | Langston Labs has an overall (composite) WACC of 10%, which demonstrates the cost of capital for its common asset.
The assets change widely in risk, and Langston examines low-risk jobs with a WACC of 8%, average-risk jobs at 10%, and high-risk projects for 12%. The business is taking into consideration the following projects: Project Risk Expected Go back A High 15% B Typical 12% C High 11% D Low 9% Elizabeth Low 6% Which pair of projects will maximize shareholder wealth? Solution | | | | | Selected Answer: | A, M, and Deb. | Right Answer: | A, W, and G. | | | | | Issue 30 two out of two points | | | Which one from the following will not result in gradual cash moves and thus must not be included in the capital budgeting research for a new product?
Answer | | | | | Selected Solution: | A strong has put in $2 , 000, 000 on R&, D associated with a new product. These costs have been expensed for taxes purposes, plus they cannot be recovered regardless of whether the newest project is accepted or perhaps rejected. | Correct Response: | A firm has put in $2 mil on R&, D connected with a new item. These costs have been expensed for tax purposes, and so they cannot be recovered regardless of whether the brand new project is accepted or perhaps rejected. | | | | | Thursday, Nov 17, 2011 11: thirty-three: 19 EVENING EST OKAY
