FIN 534 Quiz 6

Question 1

Projects S and L both have an initial cost of $10,000, followed by a series of positive cash inflows. Project Ss undiscounted net cash flows total $20,000, while Ls total undiscounted flows are $30,000. At a WACC of 10%, the two projects have identical NPVs. Which projects NPV is more sensitive to changes in the WACC?

Question 2

Which of the following statements is CORRECT?

Question 3

Which of the following statements is CORRECT?

Question 4

Which of the following statements is CORRECT?

Question 5

Which of the following statements is CORRECT?

Question 6

Which of the following statements is CORRECT?

Question 7

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

Question 8

Westchester Corp. is considering two equally risky, mutually exclusive projects, both of which have normal cash flows. Project A has an IRR of 11%, while Project B's IRR is 14%. When the WACC is 8%, the projects have the same NPV. Given this information, which of the following statements is CORRECT?

Question 9

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

Question 10

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

Question 11

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

Question 12

Projects C and D are mutually exclusive and have normal cash flows. Project C has a higher NPV if the WACC is less than 12%, whereas Project D has a higher NPV if the WACC exceeds 12%. Which of the following statements is CORRECT?

Question 13

Which of the following statements is CORRECT?

Question 14

Which of the following statements is CORRECT?

Question 15

Which of the following statements is CORRECT?

Question 16

Which of the following statements is CORRECT?

Question 17

Which of the following statements is CORRECT?

Question 18

Which of the following procedures does the text say is used most frequently by businesses when they do capital budgeting analyses?

Question 19

A firm is considering a new project whose risk is greater than the risk of the firms average project, based on all methods for assessing risk. In evaluating this project, it would be reasonable for management to do which of the following?

Question 20

Which of the following should be considered when a company estimates the cash flows used to analyze a proposed project?

Question 21

The relative risk of a proposed project is best accounted for by which of the following procedures?

Question 22

Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product?

Question 23

When evaluating a new project, firms should include in the projected cash flows all of the following EXCEPT:

Question 24

Which of the following statements is CORRECT?

Question 25

Which of the following statements is CORRECT?

Question 26

Which of the following is NOT a relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project?

Question 27

A company is considering a new project. The CFO plans to calculate the projects NPV by estimating the relevant cash flows for each year of the projects life (i.e., the initial investment cost, the annual operating cash flows, and the terminal cash flow), then discounting those cash flows at the companys overall WACC. Which one of the following factors should the CFO be sure to INCLUDE in the cash flows when estimating the relevant cash flows?

Question 28

Which of the following statements is CORRECT?

Question 29

Langston Labs has an overall (composite) WACC of 10%, which reflects the cost of capital for its average asset. Its assets vary widely in risk, and Langston evaluates low-risk projects with a WACC of 8%, average-risk projects at 10%, and high-risk projects at 12%. The company is considering the following projects:

Project Risk Expected Return

A High 15%

B Average 12%

C High 11%

D Low 9%

E Low 6%

Which set of projects would maximize shareholder wealth?

Question 30

Which of the following statements is CORRECT?