the graphical relationship between a project’s NPV and cost of capital.

the graphical relationship between a project’s NPV and cost of capital.

When the net present
value is negative, the internal rate of return is __________ the cost of
capital.

Answer


greater than


greater than or equal to


less than


equal to

The IRR

Answer


shows the graphical relationship between a project’s NPV and
cost of capital.


is the return that
causes the NPV to be zero.


is the return that causes the NPV to be positive.


measures the firm and project’s required rate of return.

Which one of the
following capital-budgeting evaluation techniques is based on finding a
discount rate which causes the net present value to be zero?

Answer


net present value


internal rate of return


profitability index


payback

An examination of a
firm’s opportunities, strengths, threats and weaknesses is often referred to by
the following acronym:

Answer


WOTS.


OSTW.


SWOT.


TWOS.

Capital budgeting is

Answer


the process of
identifying, evaluating, and implementing a firm’s investment
opportunities.


the process of identifying, evaluating, and implementing a
firm’s objectives.


the process of identifying, evaluating, and implementing a
firm’s strategic plans.


the process of identifying, evaluating, and implementing a
firm’s financing requirements.

The relevant cash
flows of a project do not include which one of the following?

Answer


incremental after-tax cash flows


cannibalization effects


opportunity costs


sunk costs

The stage in the
capital budgeting process in which projects that are accepted must be
executed in a timely fashion is called the _____________ stage.

Answer


follow-up.


selection.


identification.


implementation.

The
capital-budgeting process starts with which one of the following stages:

Answer


development


identification


implementation


selection

The corporate
planning tool that develops project plans that fit well with the firm’s plans
is often referred to by the following acronym:

Answer


MOGS.


SMOG.


OMGS.


GOMS.

When the net present
value for a project is negative, the internal rate of return is _________ the
cost of capital.

Answer


greater than


greater than or equal to


less than


equal to

Corporate debt as a
percentage of GDP grew from around ______ in 1970 to nearly ______ in 2007.

Answer


35%; 50%


40%; 55%


45%; 60%


50%; 60%

The internal and
sustainable growth rate relationships suggest that there are three measurable
influences on growth. These include all of the following except:

Answer


asset policy


dividend policy


profitability


the firm’s capital structure

The initial impact
of increasing the use of debt is to:

Answer


lower the cost of
capital


lower the weight of the debt component


increase the cost of capital


lower the cost of retained earnings

Which of the
following is a different concept from the other three?

Answer


required rate of return


cost of capital


discount rate


net profit margin

When retained
earnings are used up and new common stock is issued, we know that the cost
of:

Answer


equity has increased


equity has dropped


equity is unaffected


both common and preferred stock are affected

The firm’s target
capital structure is consistent with which of the following?

Answer


minimum risk


maximum earnings per share


minimum weighted
average cost of capital


minimum cost of equity

A firm’s degree of
combined leverage can be measured as degree of operating leverage __________
the degree of financial leverage:

Answer


plus


minus


times


divided by

What should be the
relation between the target capital structure for a firm and the firm’s
optimum capital structure?

Answer


Target and optimum
capital structures should be the same.


Target capital structure is more conservative overall.


Target capital structure contains more debt.


Target capital structure excludes preferred stock.

The cost of debt:

Answer


is typically higher than the cost of preferred stock


must be adjusted to
an after-tax cost


is higher than the cost of retained earnings


is the lowest component cost because corporations can deduct
70 percent of the interest expense

Of the components
shown below, which is least likely to be of value in calculating the cost of
preferred stock?

Answer


flotation costs per
share


book value of a preferred share


dividends per share


initial market price per share


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