FISV 5600 Financial Management Final Exam T or F for students(2).docx - FISV 5600 Financial Management Final Exam T/F(10 out of 25 points 1 The cost of

FISV 5600 Financial Management Final Exam T or F for students(2).docx

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FISV 5600 Financial Management Final Exam T/F (10% out of 25 points) 1. The cost of capital used in capital budgeting should reflect the average cost of the various sources of long-term funds a firm uses to acquire assets. - True 2. The cost of debt is equal to one minus the marginal tax rate multiplied by the interest rate on new debt. - True 3. The cost of perpetual preferred stock is found as the preferred annual dividend divided by the market price of the preferred stock. No adjustment is needed for taxes because preferred dividends, unlike interest on debt, is not deductible by the issuing firm. - True 4. Conflicts between two mutually exclusive projects occasionally occur, where the NPV method ranks one project higher but the IRR method ranks the other one first. In theory, such conflicts should be resolved in favor of the project with the higher positive NPV. - True 5. The internal rate of return is that discount rate that equates the present value of the cash outflows (or costs) with the present value of the cash inflows.
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Unformatted text preview: -True 6. A project's IRR is independent of the firm's cost of capital. In other words, a project's IRR doesn't change with a change in the firm's cost of capital.-True 7. One drawback of the regular payback for evaluating projects is that this method does not properly account for the time value of money.-False 8. One drawback of the regular payback is that this method does not take account of cash flows beyond the payback period.-True 9. A firm has spent $2 million on R&D associated with a new product. These costs have been expensed for tax purposes, and they cannot be recovered regardless of whether the new project is accepted or rejected. It is sunk cost and would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product?-True 10. Two important issues in corporate governance are (1) the rules that cover the board's ability to fire the CEO and (2) the rules that cover the CEO's ability to remove members of the board.-False...
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