TCO 4) Which of the following is true regarding the evaluation of projects? (Poi
ID: 2671210 • Letter: T
Question
TCO 4) Which of the following is true regarding the evaluation of projects? (Points : 4)sunk costs should be included
erosion effects should be considered
financing costs need to be included
opportunity costs are irrelevant
2. (TCO 4) There are several disadvantages to the payback method, among them: (Points : 4)
payback ignores the time value of money.
payback can be used in conjunction with time adjusted methods of evaluation.
payback is easy to use and to understand.
none of the above is a disadvantage.
3. (TCO 3 and 4) You can ensure that an investment is expected to create value for (Points : 4)
have a PI equal to zero.
produce negative rates of return.
have positive AARs.
have positive IRRs.
have positive NPVs.
4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 10 percent?
(Points : 4)
$1,085.25
$1,193.77
$3,498.28
$4,102.86
$4,513.15
5. (TCO 4) Leward Manufacturing is spending $115,000 to update its equipment. This is necessary if the firm wishes to be competitive in the marketplace and provide a wide array of product models. The company estimates that these updates will improve its cash inflows by $27,500 a year, for eight years. What is the payback period? (Points : 4)
4.18 years
5.82 years
6.62 years
7.79 years
This project never pays back
6. (TCO 4) The postponement of a project until conditions are more favorable: (Points : 4)
is not a valuable option.
is referred to as the option to extend.
could cause a negative net present value project to become a positive net present value project.
will generally cause the internal rate of return for a project to decline.
7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project under any circumstances. (Points : 4)
contingency planning.
hard rationing.
soft rationing.
capital constraint.
scenario analysis.
8. (TCO 4) ABC Cameras is considering an investment that will have a cost of $10,000 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 capital is 10%. Which of the following is true regarding this investment? (Points : 4)
The net present value of the project is approximately $10,000
This project should be accepted because it has a positive net present value
This project’s payback period is 10 years or more
None of the above is true
9. (TCO 4) 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 the second year depreciation amount under MACRS? (Points : 4)
$12,000
$19,200
$19,800
None of the above
10. (TCO 1 and 4) Assume a project has earnings before depreciation, and taxes of $110,000, depreciation of $40,000, and that the firm has a 30 percent tax bracket. What are the after-tax cash flows for the project? (Points : 4)
$47,000
$89,000
a loss of $21,000
none of these
11. (TCO 8) Which of the following factors will affect the expected rate of return on a security? (Points : 4)
multiple states of the economy
probability of occurrence for any one economic state
market rate of return given a particular economic state
all of the above will affect the expected rate of return
12. (TCO 8) Which statement is not true regarding risk? (Points : 4)
the expected return is always the same as the actual return
a key to assess risk is determining how much risk an investment adds to a portfolio
risks can not always be diversified
the higher the risk, the higher the return investors require for the investment
13. (TCO 8) The stock of Uptown Men's Wear is expected to produce the following returns, given the various states of the economy. What is the expected return on this stock?
(Points : 4)
9.6 percent
10.4 percent
12.8 percent
13.6 percent
15.3 percent
14. (TCO 8) 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. What is the portfolio weight of stock B? (Points : 4)
14.79 percent
15.91 percent
18.42 percent
19.07 percent
19.46 percent
15. (TCO 8) Stock A has an expected return of 14 percent and a beta of 1.3. Stock B has an expected return of 10 percent and a beta of .9. Both stocks have the same reward-to-risk ratio. What is the risk-free rate? (Points : 4)
1.0 percent
1.8 percent
2.3 percent
2.5 percent
3.1 percent
Explanation / Answer
3) have positive NPVs. 7) hard rationing. 13) 9.6 percent Please post the remaining questions in a different post. Try to keep it 3 questions per post and we will gladly answer it :)
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