1. Which of the following is true regarding the evaluationof projects? (Points: 4)
sunk costs should beincluded
erosion effects should not beconsidered
financing costs are notincluded
opportunity costs areirrelevant
2.Which of the following investment ranking methods does notconsider the time value of money? (Points: 4)
net present value method
payback method
internal rate of returnmethod
all of these are time-adjustedmethods
3. You can ensure that an investment is expected to createvalue for (Points: 4)
have a PI equal to zero.
produce negative rates ofreturn.
have positive AARs.
have positive IRRs.
have positive NPVs.
4. What is the net present value of a project with thefollowing cash flows, if the discount rate is 15percent? (Points: 4)
-$2,989.48
-$2,599.55
$1,153.37
$2,880.08
$3,312.09
5. Howard Company is considering a new project that willrequire an initial cash investment of $575,000. The project willproduce no cash flows for the first three years. The projected cashflows for years 4 through 8 are $73,000, $112,000, $124,000,$136,000, and $145,000, respectively. How long will it take thefirm to recover its initial investment in this project? (Points:4)
5.81 years
6.05 years
6.96 years
7.90 years
This project never paysback
6. Ignoring the option to expand: (Points: 4)
overestimates the internalrate of return on a project.
ignores the possibility that anegative net present value project might be positive, given changesover time.
ignores the possibility thatone variable is the primary source of the forecasting riskassociated with a project.
underestimates the net presentvalue of a project.
7. ____________, refers to the situation a firm faces when ithas positive net present value projects, but cannot obtainfinancing for those projects. (Points: 4)
capital planning.
soft rationing.
capital rationing.
hard rationing.
a sunk cause.
8. ABC Cameras is considering an investment that will have acost of $12,000 and the following cash flows: $6,000 in year 1,$4,000 in year 2 and $3,000 in year 3. Assume the cost of capitalis 10 percent, which of the following is true regarding thisinvestment? Select all that apply: (Points: 4)
the net present value of theproject is approximately $1,000
this project should not beaccepted because it has a negative net present value
this project’s payback periodis 2 years
none of the above is true
9. Assume Company X plans to invest $60,000 in new computers.Using Tables 9.6 and 9.7 of your textbook (Page 277), which is thesecond year depreciation amount under MACRS? (Points: 4)
$12,000
$19,200
$19,800
None of the above
10. Assume a project has earnings before depreciation andtaxes of $120,000, depreciation of $40,000, and that the firm has a30 percent tax bracket. What are the after-tax cash flows for theproject? (Points: 4)
$56,000
$96,000
a loss of $21,000
none of these
11. Which of the following statements is true regardingsystematic risk? Select all that apply: (Points: 4)
is diversifiable
is the total risk associatedwith surprise events
it is not project or firmspecific
is measured by beta
is measured by standarddeviation
12. Which statement is not true regarding risk? (Points:4)
the expected return is usuallynot the same as the actual return
a key to assess risk isdetermining how much risk an investment adds to a portfolio
some risks can not bedecreased or mitigated by the financial manager.
the higher the risk, thehigher the return investors require for the investment
all of the above are truestatements
13. The stock of Hobby Town has an expected return of 8.8percent. Given the information below, what is the expected returnon this stock if the economy is normal? (Points: 4)
3.86 percent
4.42 percent
6.43 percent
7.28 percent
8.21 percent
14. You own a portfolio that consists of $8,000 in stock A,$4,600 in stock B, $13,000 in stock C, and $5,500 in stock D. Whatis the portfolio weight of stock D? (Points: 4)
17.68 percent
17.91 percent
18.42 percent
19.07 percent
19.46 percent
15. You would like to create a portfolio that is equallyinvested in a risk-free asset and two stocks. The one stock has abeta of .80. What does the beta of the second stock have to be ifyou want the portfolio risk to equal that of the overall market?(Points: 4)
1.4
1.6
1.8
2.0
2.2
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