Quiz_5-Spring_2008 - BA 301 Quiz #5 [Group 1] 1. Which of...

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BA 301 Quiz #5 [Group 1] 1. Which of the following statements regarding capital budgeting is correct? A. Capital budgeting is the process through which a firm decides if an investment is good or bad. B. Capital budgeting does not involve estimating the risk of future cash flows. C. Capital budgeting is the process of planning and managing a firm's short-term investments. D. Capital budgeting is the process of managing short-term assets and liabilities. E. Capital budgeting is the process of managing long-term debt and equity issued by the firm. Answer: A 2. Which of the following statements regarding capital budgeting is NOT correct? A. Capital budgeting is the process through which a firm decides if an investment is good or bad. B. Capital budgeting starts with the estimation of the incremental cash flows from an investment. C. Capital budgeting creates a timeline of cash flows expected from an investment. D. Capital budgeting is the management of working capital accounts E. Capital budgeting compares the present value of an investment’s cash flows with its costs Answer: D [Group 2] 3. A company’s investment rule when using the calculated Net Present Value of a project is: A. Invest in the project if the NPV is negative. B. Invest in the project if the NPV is positive. C. Invest in the project only if the NPV is zero. D. Invest in the project only if its NPV is higher than last year’s project. E. NPV is not useful in making investment decisions. Answer: B
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4. Which of the following is TRUE regarding the calculation of NPV (Net Present Value)? A. NPV does not use Net Income or Net Cash Flow in its calculation B. NPV uses Net Income in its calculation rather than Net Cash Flow C. NPV uses both Net Income and Net Cash Flow in its calculation D. NPV uses Net Cash Flow in its calculation rather than Net Income E. An initial outlay of cash has no effect on NPV Answer D GROUP 3: 5. The IRR of a project is _______. A. The discount rate that makes the NPV of an investment less than zero. B. The maximum desired rate of return on a project. C. The discount rate that makes the NPV of an investment greater than zero. D. The discount rate that makes the NPV of an investment equal to zero. E. Not used in making investment decisions. Answer: D Group 4: 6. What is the present value of the following stream of cash flows received at the end of each year, at a discount rate of 9% per year? Year 1: $25,000 Year 2: $35,000 Year 3: $45,000 A. $75,500 B. $101,252 C. $74,486 D. $87,143
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E. $90,000 Answer: D 7. What is the present value of the following stream of cash flows received at the end of each year, at a discount rate of 6% per year? Year 1: $25,000 Year 2: $35,000 Year 3: $45,000 A. $75,500 B. $101,252 C. $74,486 D. $87,143 E. $92,518 Answer: E 8. What is the present value of an investment that makes the following payments at the end of each year, discounted at 8%? Year 1: $10,000
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This note was uploaded on 05/17/2008 for the course B A 301 taught by Professor Gray,garyjosephwoolridge,joseph during the Spring '07 term at Pennsylvania State University, University Park.

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Quiz_5-Spring_2008 - BA 301 Quiz #5 [Group 1] 1. Which of...

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