Q12 - University of Houston-Victoria FIN 6352 Financial...

FIN 6352 Financial Management FMQuiz12 Dr. Xavier Garza Gómez
University of Houston-Victoria
FIN 6352 Financial Management
Review Quiz for Chapter 12 - Cash Flow Estimation and Risk Analysis
True-False
1. Using the same risk-adjusted discount rate to discount all cash flows ignores the fact that
the more distant cash flows are more risky.
a. True
b. False
2. The two cardinal rules which financial analysts follow to avoid capital budgeting errors
are: (1) capital budgeting decisions must be based on accounting income, and (2) only in-
cremental cash flows are relevant to accept/reject decisions.
a. True
b. False
3. Opportunity costs include those cash inflows that could be generated from assets the firm
already owns, if those assets are not used for the project being evaluated.
a. True
b. False
Multiple Choice: Concepts
4. Other things held constant, which of the following would increase the NPV of a project
being considered?
a. A shift from MACRS to straight-line depreciation.
b. Making the initial investment in the first year rather than spreading it over the first 3
years.
c. A decrease in the discount rate associated with the project.
d. The sale of the old machine in a replacement decision at a capital loss rather than at
book value.
e. An increase in required working capital.
5. Which of the following statements is correct?

FIN 6352 Financial Management FMQuiz12 Dr. Xavier Garza Gómez