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71.      


 

     a.     Purchase price of an asset     
     b.     Interest expense
     c.     Revenue generated by a project
d.     Depreciation expense

72.     When using the net present value method, if the sum of the present values of the cash flows is positive, then:

     a.     the project should be rejected
     b.     the project is desirable
     c.     the present value of the cash outflows exceeds the present value of the cash inflows
d.     the decision maker would be indifferent between accepting and rejecting the project

73.      When choosing among several investments:

     a.     the one with the greatest net present value is the least desirable
     b.     the one with the largest positive present value should be chosen
     c.     risk should not be a factor
d.     the cost of capital is irrelevant

LEARNING OBJECTIVE 2

74.     The “break-even” cash flow is the point at which:

a.     the present value of variable cost equals the present value of fixed costs     
     b.     the present value of the cash inflows equals the present value of the cash outflows
     c.     the hurdle rate equals the market rate
     d.     total cash revenues equal the total cash expenses

75.     At the current discount rate, the net present value of an 8-year project is zero. Assuming that the current discount rate and the annual cash flows are unchanged, identify which one of the following statements is true.

a.     The project will be desirable if the project’s life is increased to 10 years.     
b.     The project will be desirable if the project’s life is reduced to 5 years.
c.     The project is equally desirable at 5 and 10 years.
d.     The project is equally undesirable at 5 and 10 years.

76.      When considering a capital budgeting project, a manager should first determine the:

     a.     risk of the investment
     b.     payback period
     c.     internal rate of return
d.     accounting rate of return

77.      


 

     a.     Increasing the minimum desired rate of return for riskier projects
     b.     Reducing individual expected cash inflows by an amount that depends on their          risk
     c.     Increasing expected cash outflows by an amount that depends on their risk
d.     Increasing the expected life of riskier projects

78.     


 

     a.     Discount analysis
     b.     Interest analysis
     c.     Sensitivity analysis
d.     Forecasting


79.      Identify which one of the following statements regarding the risk of an investment is true.

     a.     The lower the risk, the higher the discount rate.
     b.     The higher the risk, the lower the hurdle rate.
     c.     The higher the risk, the lower the cost of capital.
d.     The higher the risk, the higher the minimum desired rate of return.

80.     In capital budgeting decisions, risk is a measure of:

     a.     the likelihood that the project will succeed
     b.     the firm’s credit worthiness
     c.     the project’s desirability
d.     the project’s sensitivity to change

LEARNING OBJECTIVE 3

81.     When comparing projects using the differential approach, a manager should:

a.     choose the project with the largest positive net present value
     b.     choose the project with the largest negative net present value
     c.     choose the first project considered if the present value is positive
     d.     choose the second project considered if the present value positive

82.     When comparing projects using the total project approach, a manager should:

a.     choose the project with the largest positive net present value
b.     choose the project with the largest negative net present value
c.     choose the first project considered if the present value is positive
d.     choose the second project considered if the present value positive

83.     Arranging the relevant cash flows by project is a step in the:

     a.     payback method     
     b.     total project approach
     c.     internal rate of return approach     
d.     accounting rate of return approach

84.     


 

     a.     The differential approach     
     b.     The payback approach
     c.     The total project approach     
d.     The sensitivity approach


LEARNING OBJECTIVE 4

85.     


 

     a.     Income taxes     
     b.     Inflation
     c.     Mutually exclusive projects     
d.     All of these answers are correct.

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