FIN 534 Quiz 6
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FIN 534 Quiz 6 1. Which of the following statements is CORRECT? 2. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. 3. Projects S and L are both normal projects with an initial cost of $10,000, followed by a series of positive cash inflows. Project S's undiscounted net cash flows total $20,000, while L's total undiscounted flows are $30,000. At a WACC of 10%, the two projects have identical NPVs. Which project's NPV is more sensitive to changes in the WACC? 4. Which of the following statements is CORRECT? 5. Which of the following statements is CORRECT? 6. Which of the following statements is CORRECT? 7. Suppose a firm relies exclusively on the payback method when making capital budgeting decisions, and it sets a 4-year payback regardless of economic conditions. Other things held constant, which of the following statements is most likely to be true? 8. Which of the following statements is CORRECT? 9. Which of the following statements is CORRECT? 10. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. 11. Which of the following statements is CORRECT? 12. Which of the following statements is CORRECT? 13. Which of the following statements is CORRECT? 14. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. 15. Which of the following statements is NOT a disadvantage of the regular payback method? 16. Which of the following statements is CORRECT? 17. Which of the following statements is CORRECT? 18. Which of the following should be considered when a company estimates the cash flows used to analyze a proposed project? 19. Puckett Inc. risk-adjusts its WACC to account for project risk. It uses a WACC of 8% for below-average risk projects, 10% for average-risk projects, and 12% for above-average risk projects. Which of the following independent projects should Puckett accept, assuming that the company uses the NPV method when choosing projects? 20. Collins Inc. is investigating whether to develop a new product. In evaluating whether to go ahead with the project, which of the following items should NOT be explicitly considered when cash flows are estimated? 21. Which of the following factors should be included in the cash flows used to estimate a project's NPV? 22. Which of the following is NOT a relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project? 23. Which of the following statements is CORRECT? 24. Which of the following statements is CORRECT? 25. A firm is considering a new project whose risk is greater than the risk of the firm's average project, based on all methods for assessing risk. In evaluating this project, it would be reasonable for management to do which of the following? 26. Which of the following statements is CORRECT? 27. Which of the following rules is CORRECT for capital budgeting analysis? 28. The CFO of Cicero Industries plans to calculate a new project's NPV by estimating the relevant cash flows for each year of the project's life (i.e., the initial investment cost, the annual operating cash flows, and the terminal cash flow), then discounting those cash flows at the company's overall WACC. Which one of the following factors should the CFO be sure to INCLUDE in the cash flows when estimating the relevant cash flows? 29. Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product? 30. Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product?