MBA 621 Midterm 2025 Questions &
Answers Verified 100% Correct
T/F: Depreciation expenses have a positive impact on free cash flow.
TRUE
T/F: The firm cannot use its earnings to buy goods, pay employees, fund new investments, or
pay dividends to shareholders.
TRUE
T/F: The depreciation tax shield is the tax savings that results from the ability to deduct
depreciation.
TRUE
Which of the following is true?
I) The tax savings brought about by the project's depreciation expense.
II) The cost of a marketing survey you conducted to determine demand for the
proposed project.
III) Interest payments on debt used to finance the project.
IV) Research and Development expenditures you will make in carrying out the project.
I and IV only
The NPV profile graphs:
The project's NPV over a range of discount rates.
, Rearden Metals is considering opening a strip mining operation to provide some of the raw
materials needed in producing Rearden metal. The initial purchase of the land and the
associated costs of opening up mining operations will cost $100 million today. The mine is
expected to generate $16 million worth of ore per year for the next 12 years. At the end of
the 12th year Rearden will need to spend $20 million to restore the land to its original
pristine nature appearance. The number of potential IRRs that exist for Rearden's mining
operation is equal to:
Answer: 2
[ This project begins with a negative cash flow, then continues with 11 positive cash flows and
finally ends at one least negative cash flow. Thus, there are two changes in the signs of the
cash flows so there will be two IRRs. ]
T/F: The fundamental investment rule is the NPV investment rule.
TRUE
T/F: The IRR investment rule will identify the correct decision in all situations.
FALSE
T/F: If the NPV and IRR decision rules contract in a given project, we should follow the
IRR rule.
FALSE
T/F: If your cost of capital estimate has potential small estimation error, you cannot apply
the IRR rule.
FALSE
The internal rate of return rule can result in the wrong decision if the projects
being compared have:
Differences in scale and timing.
Which of the following statements is TRUE?
Answers Verified 100% Correct
T/F: Depreciation expenses have a positive impact on free cash flow.
TRUE
T/F: The firm cannot use its earnings to buy goods, pay employees, fund new investments, or
pay dividends to shareholders.
TRUE
T/F: The depreciation tax shield is the tax savings that results from the ability to deduct
depreciation.
TRUE
Which of the following is true?
I) The tax savings brought about by the project's depreciation expense.
II) The cost of a marketing survey you conducted to determine demand for the
proposed project.
III) Interest payments on debt used to finance the project.
IV) Research and Development expenditures you will make in carrying out the project.
I and IV only
The NPV profile graphs:
The project's NPV over a range of discount rates.
, Rearden Metals is considering opening a strip mining operation to provide some of the raw
materials needed in producing Rearden metal. The initial purchase of the land and the
associated costs of opening up mining operations will cost $100 million today. The mine is
expected to generate $16 million worth of ore per year for the next 12 years. At the end of
the 12th year Rearden will need to spend $20 million to restore the land to its original
pristine nature appearance. The number of potential IRRs that exist for Rearden's mining
operation is equal to:
Answer: 2
[ This project begins with a negative cash flow, then continues with 11 positive cash flows and
finally ends at one least negative cash flow. Thus, there are two changes in the signs of the
cash flows so there will be two IRRs. ]
T/F: The fundamental investment rule is the NPV investment rule.
TRUE
T/F: The IRR investment rule will identify the correct decision in all situations.
FALSE
T/F: If the NPV and IRR decision rules contract in a given project, we should follow the
IRR rule.
FALSE
T/F: If your cost of capital estimate has potential small estimation error, you cannot apply
the IRR rule.
FALSE
The internal rate of return rule can result in the wrong decision if the projects
being compared have:
Differences in scale and timing.
Which of the following statements is TRUE?
