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Chapter 9CAPITAL BUDGETING AND CASH FLOW ANALYSIS MULTIPLE CHOICE 1. The value of resources used in an investment project should be measured in terms of their a. acquisition cost b. historical cost c. opportunity cost d. depreciated cost ANS: C PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking LOC: Knowledge of capital budgeting and cost of capital TOP: Principles of estimating cash flows 2. Sale of an asset for less than book value creates an operating loss which effectively reduces the company's taxes by an amount equal to ________ times ________. a. one-half the loss, the company's marginal tax rate b. the loss, one minus the company's marginal tax rate c. one-half the loss, one minus the company's marginal tax rate d. the loss, the company's marginal tax rate ANS: D PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking LOC: Knowledge of capital budgeting and cost of capital TOP: Recovery of after-tax salvage value 3. There is neither a gain or a loss on the sale of a depreciable asset for an amount exactly equal to its _______. a. acquisition cost b. tax book value c. opportunity cost d. historical cost ANS: B PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking LOC: Knowledge of capital budgeting and cost of capital TOP: Recovery of after-tax salvage value 4. The ______ is a schedule of projects arranged in _______ order according to their expected rates of return. a. investment opportunity curve, ascending b. marginal cost of capital curve, ascending c. investment opportunity curve, descending d. marginal cost of capital curve, descending ANS: C PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking LOC: Knowledge of capital budgeting and cost of capital TOP: Basic framework for capital budgeting 5. Which of the following would not be classified as a capital expenditure for decision-making purposes? a. purchase of a building b. investment in a management training program c. purchase of 90-day Treasury Bills d. development of a major advertising campaign ANS: C PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking LOC: Knowledge of capital budgeting and cost of capital TOP: Introduction 6. A firm's cost of capital is: a. an important financial ratio b. equal to 10 percent c. rarely used in practice d. an important input in the capital budgeting process ANS: D PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking LOC: Knowledge of capital budgeting and cost of capital TOP: Cost of capital 7. The decision by the Municipal Transportation Authority to either refurbish existing buses, to buy new large buses, or to supplement the existing fleet with mini-buses is an example of: a. independent projects b. mutually exclusive projects c. contingent projects d. separable projects ANS: B PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking LOC: Knowledge of capital budgeting and cost of capital TOP: How projects are classified 8. Which of the following is not a major difficulty in implementing the basic capital budgeting model?... View Full Document

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