BMAL 590 BUSINESS FINANCE
Which of the following assets is the most liquid? - ANSWERS-Cash
During recessions the demand for funds typically - ANSWERS-Decreases
As the demand for fund increase, the demand curve will shift to the ________
resulting in ________ market clearing interest rate - ANSWERS-Right; higher
The ________ premium is compensation for possibility that the borrower will not
be able to pay the debt's interest and principal on time - ANSWERS-Default risk
When a project's NPV exceeds zero, - ANSWERS-The project should be accepted
without any further consideration, assuming we are confident that the cash flows
and the required rate of return have been properly estimated
The underlying cause of ranking conflicts between the NPV and IRR methods is
differing - ANSWERS-Reinvestment rate assumption
Which of the following statements is correct? - ANSWERS-The NPV method
assumes that cash flows will be reinvested at the required rate of return while the
IRR method assumes reinvestment at the IRR
, Which of the following statements is most correct? - ANSWERS-Sunk costs should
be ignored in capital budgeting
Which of the following statements is correct? - ANSWERS-The incremental
operating cash flow for capital budgeting includes return on invested capital,
which is net income, and return of part of invested capital, which is depreciation
Which of the following statements is correct? - ANSWERS-In estimating
incremental operating cash flows for the purpose of capital budgeting, interest
payments should not be included since the effects of these payments are already
included in the rate of return the firm is required to earn from its investments
A firm is considering the purchase of an asset whose risk is greater than the
current risk of the firm, based on any method for assessing risk. In evaluating this
asset, the decision maker should - ANSWERS-Increase the required rate of return
used to evaluate the project to reflect the higher risk of the project
Which of the following statements is correct? - ANSWERS-The NPV and IRR
methods use the same basic equation, but in the NPV method the discount rate is
specified and the equation is solved for NPV, while in the IRR method the NPV is
set equal to zero and the discount rate is found
Which of the following statements is correct? - ANSWERS-Large costs occur at the
end of nuclear power plants' lives because these plants have to be closed down,
and shutdown costs are high due to the difficulty of handling radioactive
materials. For this reason, it is possible that a nuclear plant project could have
two IRRs
Which of the following assets is the most liquid? - ANSWERS-Cash
During recessions the demand for funds typically - ANSWERS-Decreases
As the demand for fund increase, the demand curve will shift to the ________
resulting in ________ market clearing interest rate - ANSWERS-Right; higher
The ________ premium is compensation for possibility that the borrower will not
be able to pay the debt's interest and principal on time - ANSWERS-Default risk
When a project's NPV exceeds zero, - ANSWERS-The project should be accepted
without any further consideration, assuming we are confident that the cash flows
and the required rate of return have been properly estimated
The underlying cause of ranking conflicts between the NPV and IRR methods is
differing - ANSWERS-Reinvestment rate assumption
Which of the following statements is correct? - ANSWERS-The NPV method
assumes that cash flows will be reinvested at the required rate of return while the
IRR method assumes reinvestment at the IRR
, Which of the following statements is most correct? - ANSWERS-Sunk costs should
be ignored in capital budgeting
Which of the following statements is correct? - ANSWERS-The incremental
operating cash flow for capital budgeting includes return on invested capital,
which is net income, and return of part of invested capital, which is depreciation
Which of the following statements is correct? - ANSWERS-In estimating
incremental operating cash flows for the purpose of capital budgeting, interest
payments should not be included since the effects of these payments are already
included in the rate of return the firm is required to earn from its investments
A firm is considering the purchase of an asset whose risk is greater than the
current risk of the firm, based on any method for assessing risk. In evaluating this
asset, the decision maker should - ANSWERS-Increase the required rate of return
used to evaluate the project to reflect the higher risk of the project
Which of the following statements is correct? - ANSWERS-The NPV and IRR
methods use the same basic equation, but in the NPV method the discount rate is
specified and the equation is solved for NPV, while in the IRR method the NPV is
set equal to zero and the discount rate is found
Which of the following statements is correct? - ANSWERS-Large costs occur at the
end of nuclear power plants' lives because these plants have to be closed down,
and shutdown costs are high due to the difficulty of handling radioactive
materials. For this reason, it is possible that a nuclear plant project could have
two IRRs
