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

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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