This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: ch17 Student: _______________________________________________________________________________________ Multiple Choice Questions 1. The flow-to-equity (FTE) approach in capital budgeting is defined to be the: A. discounting all cash flows from a project at the overall cost of capital. B. scale enhancing discount process. C. discounting of the levered cash flows to the equity holders for a project at the required return on equity. D. the dividends and capital gains that may flow to shareholders of any firm. E. discounting of the unlevered cash flows of a project from a levered firm at the WACC. 2. The acronym APV stands for: A. applied present value. B. all purpose variable. C. accepted project verified. D. adjusted present value. E. applied projected value. 3. A leveraged buyout (LBO) is when a firm is acquired by: A. a small group of management with equity financing. B. a small group of equity investors financing the majority of the price by debt. C. any group of equity investors when the majority is financed with preferred stock. D. any group of investors for the assets of the corporation. E. None of the above. 4. Discounting the unlevered after tax cash flows by the _____ minus the ______ yields the ________. A. cost of capital for the unlevered firm; initial investment; adjusted present value. B. cost of equity capital; initial investment; project NPV. C. weighted cost of capital; fractional equity investment; project NPV. D. cost of capital for the unlevered firm; initial investment; all-equity net present value. E. None of the above. 5. The acceptance of a capital budgeting project is usually evaluated on its own merits. That is, capital budgeting decisions are treated separately from capital structure decisions. In reality, these decisions may be highly interwoven. This may result in: A. firms rejecting positive NPV, all equity projects because changing to a capital structure with debt will always create negative NPV. B. never considering capital budgeting projects on their own merits. C. corporate financial managers first checking with their investment bankers to determine the best type of capital to raise before valuing the project. D. firms accepting some negative NPV all equity projects because changing capital structure adds enough positive leverage tax shield value to create a positive NPV. E. firms never changing the capital structure because all capital budgeting decisions will be subsumed by capital structure decisions. 6. The APV method is comprised of the all equity NPV of a project and the NPV of financing effects. The four side effects are: A. tax subsidy of dividends, cost of issuing new securities, subsidy of financial distress and cost of debt financing....
View Full Document
- Spring '11