PRINCIPLES OF CORPORATE FINANCE 2026
COMPREHENSIVE ASSESSMENT
◉ The decision rule for net present value is to: Answer: accept all
projects with positive net present values.
◉ If a project's NPV is calculated to be negative what should a
project manager do? Answer: The project should be rejected.
◉ Which one of the following changes will increase the NPV of a
project? Answer: A decrease in the discount rate
◉ As the discount rate is increased, the NPV of a specific project will:
Answer: decrease.
◉ A project requires an initial outlay of $10 million. If the cost of
capital exceeds the project IRR, then the project has a(n): Answer:
negative NPV.
◉ Soft capital rationing is imposed upon a firm by _____________, while
hard capital rationing is imposed by _____________. Answer:
management; the capital market
,◉ The ratio of net present value to initial investment is known as
the: Answer: profitability index.
◉ The opportunity cost of capital is equal to: Answer: the return
that shareholders could expect by investing their money in the
financial markets.
◉ According to the NPV rule, all projects should be accepted if NPV
is positive when discounted at the: Answer: opportunity cost of
capital.
◉ The investment timing problem arises when: Answer: investment
can occur now or at some future point
◉ Real rates of return are typically less than nominal rates of return
due to: Answer: inflation.
◉ The actual real rate of return on an investment will be positive as
long as the: Answer: nominal return exceeds the inflation rate.
◉ The Dow Jones Industrial Average is: Answer: an index of 30
major stocks
, ◉ "Dow up 14. Story at 6:00." This means that: Answer: the Dow
index increased by 14 points in today's trading
◉ Although several stock indexes are available to inform investors of
market changes, the Dow Jones Industrial Average: Answer: is one of
the best-known of the U.S. market indexes.
◉ The primary difference between U.S. Treasury bills and U.S.
Treasury bonds is that the bills: Answer: have a shorter maturity at
time of issue.
◉ Which one of the following guarantees is offered to common stock
investors? Answer: No guarantees of any form
◉ The wider the dispersion of returns on a stock, the: Answer:
higher the standard deviation.
◉ The variance of an investment's returns is a measure of the:
Answer: volatility of the rates of return.
◉ Which one of the following security classes has the highest
standard deviation of returns? Answer: Common stocks
COMPREHENSIVE ASSESSMENT
◉ The decision rule for net present value is to: Answer: accept all
projects with positive net present values.
◉ If a project's NPV is calculated to be negative what should a
project manager do? Answer: The project should be rejected.
◉ Which one of the following changes will increase the NPV of a
project? Answer: A decrease in the discount rate
◉ As the discount rate is increased, the NPV of a specific project will:
Answer: decrease.
◉ A project requires an initial outlay of $10 million. If the cost of
capital exceeds the project IRR, then the project has a(n): Answer:
negative NPV.
◉ Soft capital rationing is imposed upon a firm by _____________, while
hard capital rationing is imposed by _____________. Answer:
management; the capital market
,◉ The ratio of net present value to initial investment is known as
the: Answer: profitability index.
◉ The opportunity cost of capital is equal to: Answer: the return
that shareholders could expect by investing their money in the
financial markets.
◉ According to the NPV rule, all projects should be accepted if NPV
is positive when discounted at the: Answer: opportunity cost of
capital.
◉ The investment timing problem arises when: Answer: investment
can occur now or at some future point
◉ Real rates of return are typically less than nominal rates of return
due to: Answer: inflation.
◉ The actual real rate of return on an investment will be positive as
long as the: Answer: nominal return exceeds the inflation rate.
◉ The Dow Jones Industrial Average is: Answer: an index of 30
major stocks
, ◉ "Dow up 14. Story at 6:00." This means that: Answer: the Dow
index increased by 14 points in today's trading
◉ Although several stock indexes are available to inform investors of
market changes, the Dow Jones Industrial Average: Answer: is one of
the best-known of the U.S. market indexes.
◉ The primary difference between U.S. Treasury bills and U.S.
Treasury bonds is that the bills: Answer: have a shorter maturity at
time of issue.
◉ Which one of the following guarantees is offered to common stock
investors? Answer: No guarantees of any form
◉ The wider the dispersion of returns on a stock, the: Answer:
higher the standard deviation.
◉ The variance of an investment's returns is a measure of the:
Answer: volatility of the rates of return.
◉ Which one of the following security classes has the highest
standard deviation of returns? Answer: Common stocks
