sophia PRINCIPLES OF FINANCEunit 4.docx - Unit 4 principles...

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Unit 4 principles of finance Theoretically, a company comparing multiple projects with similar investment requirements and durations would select projects with __________. the highest IRR Theoretically, a company comparing multiple long-term projects would select to invest in those with __________ payback period. the briefest Theoretically, a company would dispense with plans for a long-term project whose net present value __________. falls below zero A company is considering investing $90,000 in a project with the following anticipated net cash flows: Year 1: $19,000 Year 2: $12,000 Year 3: $14,000 Year 4: $22,000 Year 5: $17,000 Year 6: $13,000 In what year will payback occur? Year 6 Select one advantage of IRR as a capital budget method. a.) It accounts for the different value of money over time. Select one disadvantage of IRR as a capital budget method. The IRR can be inaccurate due to risks related to reinvestment. Select one advantage of IRR as a capital budget method. It is relatively simple and easily comprehensible. What is one disadvantage of NPV as a capital budget method? It is not very good at accounting for opportunity cost. What is one advantage of NPV as a capital budget method? It is a useful tool for comparing multiple investment options regardless of the duration of each. What is one advantage of NPV as a capital budget method? It is easy to understand and interpret when making investment choices. __________, like research and development, that already occurred should not be part of cash flow analysis in the capital budgeting process. Sunk costs Although __________ is recorded as an expense on the cash flow statement, it is not included as part of cash flow in the capital budgeting process. Depreciation When considering a replacement project, __________ must be included in the cash flow analysis. salvage value
Unit 4 principles of finance Which of the following is an example of a market risk for a company that manufactures automobiles? Rising tariffs that increase the price of automobiles sold overseas, thereby reducing demand Which of the following is an example of a financial risk for a company that manufactures automobiles? A car rental agency defaulting on a contract to buy a large volume of automobiles Which of the following is an example of an operational risk for a company that manufactures automobiles? Disruption to the supply chain of material, due to domestic unrest in the source country Select one reason why a company would want to go private. To have fewer administrative expenses associated with securities regulation What is one potential advantage of being a privately-held company? Certain investors may find the ability to retain control over the company attractive. Select one reason why a company would want to go public. To have access to a large magnitude of funding Which of the following types of financing is typical for a business in its introduction stage? Bank loans Which of the following types of financing is typical for a business in its mature stage? Issuing bonds Which of the following types of financing is typical for a business in its growth stage?

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