Which of the following is true about the Net Present Value method?

Which of the following is true about the Net Present Value method? A) The NPV does not utilize time value of money concepts. B) The NPV assumes that...

Which one of the following cash flow patterns is NOT an unconventional cash flow pattern?

Which one of the following cash flow patterns is NOT an unconventional cash flow pattern? A) A positive initial cash flow is followed by negative...

In evaluating capital projects, the decisions using the NPV method and the IRR method may disagree if

In evaluating capital projects, the decisions using the NPV method and the IRR method may disagree if A) the projects are independent. B) the cash...

When evaluating capital projects, the decisions using the NPV method and the IRR method will agree if

When evaluating capital projects, the decisions using the NPV method and the IRR method will agree if A) the projects are independent. B) the cash...

The internal rate of return is

The internal rate of return is A) the discount rate that makes the NPV greater than zero. B) the discount rate that makes the NPV equal to zero. C)...

Which one of the following statements about IRR is NOT true?

Which one of the following statements about IRR is NOT true? A) The IRR is the discount rate that makes the NPV greater than zero. B) The IRR is...

Disadvantages of the payback method include the following.

Disadvantages of the payback method include the following. A) It ignores the time value of money. B) It is inconsistent with the goal of maximizing...

Advantages of the payback method include the following.

Advantages of the payback method include the following. A) The technique is simple for managers to compute and interpret. B) It is a good measure of...

Which one of the following statements about the discounted payback method is NOT true?

Which one of the following statements about the discounted payback method is NOT true? A) The discounted payback method represents the number of...

Which ONE of the following statements about the payback method is true?

Which ONE of the following statements about the payback method is true? A) The payback method is consistent with the goal of shareholder wealth maximization B)...

To accept a capital project when using NPV,

To accept a capital project when using NPV, A) the project NPV should be less than zero. B) the project NPV should be greater than zero. C) both a...

The net present value

The net present value A) uses the discounted cash flow valuation technique. B) will provide a direct measure of how much the firm value will change...

In computing the NPV of a capital budgeting project, one should NOT

In computing the NPV of a capital budgeting project, one should NOT A) estimate the cost of the project. B) discount the future cash flows over the...

Which one of the following statements is NOT true?

Which one of the following statements is NOT true? A) Accepting a positive-NPV project increases shareholder wealth. B) Accepting a negative-NPV...

Which one of the following statements is NOT true?

Which one of the following statements is NOT true? A) Accepting a positive-NPV project increases shareholder wealth. B) Accepting a negative-NPV...

Capital rationing implies that

Capital rationing implies that A) funding resources exceed funding needs. B) funding needs exceed funding resources. C) funding needs equal funding...

Capital rationing implies that

Capital rationing implies that A) the firm does not have enough resources to fund all of the available projects. B) funding needs equal funding resources. C)...

The cost of capital is

The cost of capital is A) the minimum return that a capital budgeting project must earn for it to be accepted. B) the maximum return a project can...

If both projects are positive-NPV projects, then the firm should

If both projects are positive-NPV projects, then the firm should A) accept both projects because they are independent projects. B) select the higher...

The firm's decision will be to

The firm's decision will be to A) accept both projects because they are independent projects. B) accept both projects because they are contingent...

Contingent projects would imply that

Contingent projects would imply that A) the acceptance of one project is dependent on the acceptance of the other. B) the projects can be either mandatory...

Two projects are considered to be contingent projects if

Two projects are considered to be contingent projects if A) selecting one would automatically eliminate accepting the other. B) the acceptance of...

Two projects are considered to be mutually exclusive if

Two projects are considered to be mutually exclusive if A) the projects perform the same function. B) selecting one would automatically eliminate...

Two projects are considered to be independent if

Two projects are considered to be independent if A) selecting one would have no bearing on accepting the other. B) their cash flows are unrelated. C)...

Which of the following are aspects of independent projects?

Which of the following are aspects of independent projects? A) Their cash flows are related. B) Their cash flows are unrelated. C) Selecting one would...

Which of the following is NOT true about capital budgeting.

Which of the following is NOT true about capital budgeting. A) It involves identifying projects that will add to the firm's value. B) It involves...

When the law of one price is violated in that the same good is selling for two different prices, an opportunity for what type of transaction is created?

When the law of one price is violated in that the same good is selling for two different prices, an opportunity for what type of transaction is created? a....

The expected return minus the risk-free rate is called

The expected return minus the risk-free rate is called  a. the risk premium b. the percentage return c. the asset's beta d. the return premium e....

In which one of the following types of contract between a seller and a buyer does the seller agree to sell a specified asset to the buyer today and then buy it back at a specified time in the future at an agreed future price.

In which one of the following types of contract between a seller and a buyer does the seller agree to sell a specified asset to the buyer today and...

The process of selling borrowed assets with the intention of buying them back at a later date and lower price is referred to as

The process of selling borrowed assets with the intention of buying them back at a later date and lower price is referred to as  a. longing an...

The process of creating new financial products is sometimes referred to as

The process of creating new financial products is sometimes referred to as a. financial frontiering b. financial engineering c. financial modeling d....

Which of the following contracts obligates a buyer to buy or sell something at a later date?

Which of the following contracts obligates a buyer to buy or sell something at a later date? a. call b. futures c. cap d. put e. swaption Answer:...

Which of the following statements is not true about the law of one price

Which of the following statements is not true about the law of one price a. investors prefer more wealth to less b. investments that offer the same...

Investors who do not consider risk in their decisions are said to be

Investors who do not consider risk in their decisions are said to be a. speculating b. short selling c. risk neutral d. traders e. none of the above Answer:...

Which of the following markets is/are said to provide price discovery?

Which of the following markets is/are said to provide price discovery? a. futures b. forwards c. options d. a and b e. b and c Answer: ...

Which of the following trade on organized exchanges?

Which of the following trade on organized exchanges? a. caps b. forwards c. options d. swaps e. none of the above Answer: ...

A market in which the price equals the true economic value

A market in which the price equals the true economic value a. is risk-free b. has high expected returns c. is organized d. is efficient e. all of...

Options on futures are also known as

Options on futures are also known as a. spot options b. commodity options c. exchange options d. security options e. none of the above Answer:...

A forward contract has which of the following characteristics?

A forward contract has which of the following characteristics? a. has a buyer and a seller b. trades on an organized exchange c. has a daily settlement d....

Which of the following are advantages of derivatives?

Which of the following are advantages of derivatives? a. lower transaction costs than securities and commodities b. reveal information about expected...

A transaction in which an investor holds a position in the spot market and sells a futures contract or writes a call is

A transaction in which an investor holds a position in the spot market and sells a futures contract or writes a call is a. a gamble b. a speculative...

The positive relationship between risk and return is called

The positive relationship between risk and return is called a. expected return b. market efficiency c. the law of one price d. arbitrage e. none...

Which of the following instruments are contracts but are not securities

Which of the following instruments are contracts but are not securities a. stocks b. options c. swaps d. a and b e. b and c Answer: ...

A call option gives the holder

A call option gives the holder a. the right to buy something b. the right to sell something c. the obligation to buy something d. the obligation to...

Cash markets are also known as

Cash markets are also known as a. speculative markets b. spot markets c. derivative markets d. dollar markets e. none of the above Answer:...

The market value of the derivatives contracts worldwide totals

The market value of the derivatives contracts worldwide totals  a. less than a trillion dollars b. in the hundreds of trillion dollars c. over...

Which market adjusts the quickest in response to shocks to the economy?

Which market adjusts the quickest in response to shocks to the economy? a. The labor market b. The goods market c. The asset, labor, and goods markets...

An increase in taxes (when Ricardian equivalence doesn't hold) causes the real interest rate to ________ and the price level to ________ in general equilibrium.

An increase in taxes (when Ricardian equivalence doesn't hold) causes the real interest rate to ________ and the price level to ________ in general...

Vault cash is equal to $2 million, deposits by depository institutions at the central bank are $1 million, the monetary base is $15 million, and bank deposits are $35 million. Currency held by the nonbank public is

Vault cash is equal to $2 million, deposits by depository institutions at the central bank are $1 million, the monetary base is $15 million, and bank...

Assume that the currency-deposit ratio is 0.2 and the reserve-deposit ratio is 0.1. The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. This action will increase the money supply by

Assume that the currency-deposit ratio is 0.2 and the reserve-deposit ratio is 0.1. The Federal Reserve carries out open-market operations, purchasing...

Over the past year, productivity grew 2%, capital grew 1%, and labor grew 1%. If the elasticities of output with respect to capital and labor are 0.2 and 0.8, respectively, how much did output grow?

Over the past year, productivity grew 2%, capital grew 1%, and labor grew 1%. If the elasticities of output with respect to capital and labor are 0.2...

In the Solow model, if f(k) = 2k^0.5, s = 0.1, n = 0.1, and d = 0.05, what is the value of f(k) at equilibrium?

In the Solow model, if f(k) = 2k^0.5, s = 0.1, n = 0.1, and d = 0.05, what is the value of f(k) at equilibrium? a. 8/3 b. 2 c. 2/3 d. 4/3 Answer:...

GDP differs from GNP because

GDP differs from GNP because a. GNP = GDP - net factor payments from abroad. b. GDP = GNP - capital consumption allowances. c. GNP = GDP - capital...

Which of the following is included in U.S. GDP?

Which of the following is included in U.S. GDP? a. The purchase of a watch from a Swiss company b. The sale of a used car c. The sale of a new car...

Which of the following macroeconomic variables is procyclical and coincident with the business cycle?

Which of the following macroeconomic variables is procyclical and coincident with the business cycle? a. Industrial production b. Residential investment c....

In the short run, an increase in export sales would cause output to ________ and the price level to ________.

In the short run, an increase in export sales would cause output to ________ and the price level to ________. a. rise; stay constant b. rise; rise c....

There's been a real depreciation of the dollar over the past month. In the long run, you would expect the quantity of

There's been a real depreciation of the dollar over the past month. In the long run, you would expect the quantity of a. American imports to fall...

Currency unions are rare because

Currency unions are rare because a. they're to no one's advantage. b. having flexible exchange rates has the same benefits and none of the costs. c....

Increases in the debt-GDP ratio are primarily caused by

Increases in the debt-GDP ratio are primarily caused by a. a high government deficit relative to GDP. b. a high growth rate of GDP. c. increases in...

Consider an economy that has the following monetary data.

Consider an economy that has the following monetary data. Currency held by the nonbank public = $300 Bank reserves = $50 Monetary base = $350 Deposits...

The average cost of the distortion created by taxes

The average cost of the distortion created by taxes a. increases proportionately with the tax rate. b. is higher when the tax rate is constant than...

In goods market equilibrium in an open economy,

In goods market equilibrium in an open economy, a. the desired amount of national saving must equal the desired amount of domestic investment. b....

An economy is considered a small open economy if it

An economy is considered a small open economy if it a. has GDP less than 1% of world GDP. b. has a zero trade balance. c. is too small to affect...

If the price level was 100 in 2009 and 102 in 2010, the inflation rate was

If the price level was 100 in 2009 and 102 in 2010, the inflation rate was a. 0.2%. b. 2%. c. 20%. d. 102%. Answer: ...

The number of unemployed divided by the labor force equals

The number of unemployed divided by the labor force equals a. the inflation rate. b. the labor force participation rate. c. the misery index. d....

Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent increase in the depreciation rate now has what effect on your desired capital stock?

Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent increase in the depreciation rate now has what effect...

Desired national saving equals

Desired national saving equals a. I(d) + G. b. C(d) + I(d) + G. c. Y - C(d) - G. d. Y - I(d) - G. Answer: ...

Money demand is given by M(d)/P = 1000 + 0.2Y - 1000i. Given that P = 200, Y = 2000, and i = 0.10, real money demand is equal to

Money demand is given byM(d)/P = 1000 + 0.2Y - 1000i.Given that P = 200, Y = 2000, and i = 0.10, real money demand is equal to a. 260,000. b. 1,300. c....

An increase in expected inflation is likely to cause

An increase in expected inflation is likely to cause a. a decline in the demand for real balances. b. an increase in the demand for real balances. c....

The amount of output lost when the inflation rate is reduced by one percentage point is called

The amount of output lost when the inflation rate is reduced by one percentage point is called a. the sacrifice ratio. b. Okun's law. c. the Solow...

If the expected inflation rate is unchanged, a fall in the natural rate of unemployment would

If the expected inflation rate is unchanged, a fall in the natural rate of unemployment would a. shift the Phillips curve to the right. b. not shift...

Which of the following would shift the FE line to the left?

Which of the following would shift the FE line to the left? a. A decrease in the future marginal productivity of capital b. A decrease in the capital...

Which of the following changes shifts the long-run aggregate supply curve to the right?

Which of the following changes shifts the long-run aggregate supply curve to the right? a. A decrease in the demand for labor b. A decrease in taxes...

In the Keynesian model, suppose the Fed sets a target for the real interest rate. If the IS curve shifts up and to the right, and the Fed wants to keep output unchanged in the short run and the price level unchanged in the long run, it will

In the Keynesian model, suppose the Fed sets a target for the real interest rate. If the IS curve shifts up and to the right, and the Fed wants to keep...

Changes in reserve requirements directly and immediately affect

Changes in reserve requirements directly and immediately affect a. the monetary base. b. banks' holdings of securities. c. the money multiplier. d....

Suppose the current level of output is 5000 and the elasticity of output with respect to capital is 0.4. A 10% increase in capital would increase the current level of output to

Suppose the current level of output is 5000 and the elasticity of output with respect to capital is 0.4. A 10% increase in capital would increase the...

Over the past year, output grew 5%, capital grew 5%, and labor grew 1%. If the elasticities of output with respect to capital and labor are 0.3 and 0.7, respectively, how much did productivity grow?

Over the past year, output grew 5%, capital grew 5%, and labor grew 1%. If the elasticities of output with respect to capital and labor are 0.3 and...

The value of real GDP in the current year equals

The value of real GDP in the current year equals a. the value of current-year output in prices of the current year. b. the value of base-year output...

The nominal interest rate minus the inflation rate is the

The nominal interest rate minus the inflation rate is the a. real interest rate. b. forward rate. c. depreciation rate. d. discount rate. Answer:...

In the long run, an increase in consumer spending would cause output to ________ and the price level to ________.

In the long run, an increase in consumer spending would cause output to ________ and the price level to ________. a. stay constant; stay constant b....

When plotted with the aggregate price level on the vertical axis and output on the horizontal axis, which of the following curves slopes downward?

When plotted with the aggregate price level on the vertical axis and output on the horizontal axis, which of the following curves slopes downward? a....

Suppose the dollar/euro exchange rate falls. Then

Suppose the dollar/euro exchange rate falls. Then a. the euro is more valuable relative to the dollar. b. French firms will import more from the United...

The price of one currency in terms of another is called

The price of one currency in terms of another is called a. purchasing power parity. b. the exchange rate. c. a currency band. d. the terms of trade. Answer:...

The total value of government bonds outstanding at any particular time is called the

The total value of government bonds outstanding at any particular time is called the a. government debt. b. seignorage revenue. c. yield curve. d....

According to the Ricardian equivalence proposition, current deficits

According to the Ricardian equivalence proposition, current deficits a. will affect both consumption and national saving. b. will not affect consumption...

Which of the following would be part of the nation's capital and financial account?

Which of the following would be part of the nation's capital and financial account? a. A night club show seen by an American in Mexico City b. A...

Consider a small open economy with desired national saving of S(d)= 200 + 10,000r and desired investment of I(d) = 1,000 - 5,000r. If r = 0.05, then net exports equal

Consider a small open economy with desired national saving of S(d)= 200 + 10,000r and desired investment of I(d) = 1,000 - 5,000r. If r = 0.05, then...

Average labor productivity is the

Average labor productivity is the a. amount of machines per worker b. amount of workers per machine c. amount of output per worker d. ratio of employed...

The main reason that the United States has such a high standard of living is

The main reason that the United States has such a high standard of living is a. low unemployment b. high government budget deficits c. low inflation d....

An increase in the expected real interest rate tends to

An increase in the expected real interest rate tends to a. raise desired investment only. b. raise both desired saving and desired investment. c....

Aunt Agatha has just left her nephew $5000. The most likely response is for her nephew to

Aunt Agatha has just left her nephew $5000. The most likely response is for her nephew to a. increase current consumption, but not future consumption. b....

What's the most common way for a central bank to reduce the money supply?

What's the most common way for a central bank to reduce the money supply? a. Collect higher taxes b. Buy bonds from the government c. Buy bonds from...

Suppose real money demand is L = 0.8Y - 100,000(r + pi(e)). If the nominal money supply is 12,000, real output is 15,000, the real interest rate is 0.02, and the expected inflation rate is 0.01, then the price level is

Suppose real money demand isL = 0.8Y - 100,000(r + pi(e)).If the nominal money supply is 12,000, real output is 15,000, the real interest rate is 0.02,...

Milton Friedman and Edmund Phelps questioned

Milton Friedman and Edmund Phelps questioned a. the existence of a full-employment level of output. b. the existence of a natural rate of unemployment. c....

Countries in which wages adjust slowly to changes in the supply of and demand for labor are likely to have ________ sacrifice ratio.

Countries in which wages adjust slowly to changes in the supply of and demand for labor are likely to have ________ sacrifice ratio. a. a low b. a...

The fact that the long-run Phillips curve is vertical implies that

The fact that the long-run Phillips curve is vertical implies that a. monetary policy can't affect unemployment. b. money is neutral in the long run. c....

Which of the following statements about preferred stock is false?

Which of the following statements about preferred stock is false? A) Preferred stock has a higher-priority claim on the firm's assets than common...

Which of the following statements is true?

Which of the following statements is true? A) In order for the constant growth dividend model to properly value a firm's common stock, R must be greater...

The constant-growth dividend model will provide invalid solutions when

The constant-growth dividend model will provide invalid solutions when a. the growth rate of the stock exceeds the required rate of return for the...

Which one of the following statements is NOT true about constant-growth stocks?

Which one of the following statements is NOT true about constant-growth stocks? a. Dividend stays constant over time. b. Mature companies with a history...

Which one of the following statements is NOT true about zero-growth stocks?

Which one of the following statements is NOT true about zero-growth stocks? a. Dividend stays constant over time. b. The cash flow pattern resembles...

The three simplifying assumptions that cover most stock growth patterns are

The three simplifying assumptions that cover most stock growth patterns are a. dividends that stay constant over time, dividends that grow at a constant...

Which ONE of the following statements is true about fast growth stocks?

Which ONE of the following statements is true about fast growth stocks? a. These are firms that grow their sales at above-average rates and are expected...

Which one of the following statements is NOT true about the general dividend valuation model?

Which one of the following statements is NOT true about the general dividend valuation model? a. The model does not assume any specific pattern...

Applying the valuation procedure to common stocks is more difficult than applying it to bonds because

Applying the valuation procedure to common stocks is more difficult than applying it to bonds because a. the size and timing of the dividend cash...

Preferred stock is sometimes regarded like a debt security because

Preferred stock is sometimes regarded like a debt security because a. legally preferred stock is a debt security. b. preferred dividend payments like...

Owners of preferred stock

Owners of preferred stock a. have limited voting rights. b. usually receive fixed dividend payments. c. are given priority treatment over common...

Which ONE of the following statements is NOT true about preferred stock?

Which ONE of the following statements is NOT true about preferred stock? a. Preferred dividend payments are fixed amounts paid regularly by the firm,...

Which one of the following statements is NOT true about preferred stock?

Which one of the following statements is NOT true about preferred stock? a. Preferred stock represents ownership in the firm. b. Owners of preferred...

Which ONE of the following statements is true about common stock?

Which ONE of the following statements is true about common stock? a. Common stock is considered to have a fixed maturity. b. Owners of common stock...

Which one of the following statements is NOT true about common stock?

Which one of the following statements is NOT true about common stock? a. Common-stock holders have the right to vote on the selection of the board...

Which one of the following statements is NOT true about auction markets?

Which one of the following statements is NOT true about auction markets? a. In an auction market, buyers and sellers face each other directly and...

Dealer markets are characterized by

Dealer markets are characterized by a. no time-consuming search for a fair deal. b. a guarantee of order fulfillment because the dealer holds an...

Which ONE of the following statements is true about dealer markets?

Which ONE of the following statements is true about dealer markets? a. NYSE is the best-known example of a dealer market. b. A dealer market involves...

In brokered markets

In brokered markets a. the commission charged by brokers is a lower cost to buyers and sellers than the cost of direct search. b. buyers and sellers...

Which one of the following statements is NOT true about broker markets?

Which one of the following statements is NOT true about broker markets? a. Brokers bring buyers and sellers together to earn a fee, called a commission. b....

The least efficient of all the different types of secondary markets is the

The least efficient of all the different types of secondary markets is the a. auction market. b. direct search market. c. dealer market. d. broker...

Direct search markets are characterized by

Direct search markets are characterized by a. complete price information. b. extensive broker and dealer participation c. private placement transactions...

In comparison to the NYSE,

In comparison to the NYSE,  a. NASDAQ has less companies listed. b. total share volume is lower on the NASDAQ. c. firms listed on the NASDAQ...

Which one of the following statements is NOT true about secondary markets?

Which one of the following statements is NOT true about secondary markets? a. In terms of total volume of activity and total capitalization of the...

Which ONE of the following statements is true about secondary markets in the United States?

Which ONE of the following statements is true about secondary markets in the United States? a. In terms of total volume of activity and total capitalization...

Which ONE of the following statements is true about secondary markets?

Which ONE of the following statements is true about secondary markets? a. In secondary markets, outstanding shares of stock are bought and sold among...

The largest holders of equity securities are

The largest holders of equity securities are a. mutual funds. b. pension funds. c. foreign investors. d. households Answer:...

When is the appropriate time to harvest an asset?

When is the appropriate time to harvest an asset? A) That point in time where harvesting the asset yields the largest internal rate of return. B)...

Your firm is evaluating the merits of several different machines. Machine A has a useful life of 5-years, generates an NPV of $53,250, an IRR of 13.6% and an equivalent annual cost of $10,316. Machine B has a useful life of 3-years, an NPV of $61,051, an IRR of 12.5%, and an equivalent annual cost of $9,724. Machine C has a useful life of 4-years, generates an NPV of $55,225, an IRR of 15.2% and an equivalent annual cost of $7,535 Machine D has a useful life of 7-years, generates an NPV of $64,020, an IRR of 11.4% and an equivalent annual cost of $8,885.

Your firm is evaluating the merits of several different machines. Machine A has a useful life of 5-years, generates an NPV of $53,250, an IRR of 13.6%...

Which of the following is an example of a fixed cost?

Which of the following is an example of a fixed cost? A) Cost of equipment purchased for an assembly line to be used in the production of a new product. B)...

Which of the following should not be included in a schedule of cash flows from operations when evaluating a capital project?

Which of the following should not be included in a schedule of cash flows from operations when evaluating a capital project? A) Fixed costs. B) Sunk...

General Mills just is undertaking an analysis on a new cereal. The firm realizes that if they come out with a new product it would affect sales of existing products? What is the best course of action for General Mills in this analysis?

General Mills just is undertaking an analysis on a new cereal. The firm realizes that if they come out with a new product it would affect sales of existing...

Which of the following statements is true?

Which of the following statements is true? A) The calculation of free cash flow does not include the impact of income taxes. B) Accounting earnings...

Which of the following statements is correct?

Which of the following statements is correct? A) Incremental net operating profits after-tax should include sunk costs associated with a project. B)...

Norman, Inc. is considering two mutually exclusive projects. Project A is a six-year project with a NPV of $3,000 and Project B is a four-year project with an NPV of $2,278. Project A has an equivalent annual cash flow of $730 and Project B has an equivalent annual cash flow of $750. Which project should the firm select?

Norman, Inc. is considering two mutually exclusive projects. Project A is a six-year project with a NPV of $3,000 and Project B is a four-year project...

The proper time to harvest an asset is when

The proper time to harvest an asset is when A) the percentage NPV increase of harvesting a project at a future point in time is at the last date...

Stillwater Drinks is trying to determine when to harvest the water from the fountain of youth that it currently owns. If it harvests the water in year 1, the NPV of the project would increase over an immediate harvest by 18 percent. A year 2 harvest would create an NPV increase of 12 percent over that of year 1 and year 3 would create an NPV increase of 8 percent over that of year 2. If the cost of capital is 17 percent for Stillwater, then which harvest year would maximize the NPV for the firm? Assume that all NPVs are calculated from the perspective of today.

Stillwater Drinks is trying to determine when to harvest the water from the fountain of youth that it currently owns. If it harvests the water in year...

Windy Burgers is trying to determine when to harvest a herd of cows that it currently owns. If it harvests the herd in year 1, the NPV of the project would increase over an immediate harvest by 25 percent. A year 2 harvest would create an NPV increase of 15 percent over that of year 1 and year 3 would create an NPV increase of 7 percent over that of year 2. If the cost of capital is 12 percent for Windy, then which harvest year would maximize the NPV for the firm? Assume that all NPVs are calculated from the perspective of today.

Windy Burgers is trying to determine when to harvest a herd of cows that it currently owns. If it harvests the herd in year 1, the NPV of the project...

If you are deciding whether to take one project or another, where the projects have different useful lives, then you could utilize

If you are deciding whether to take one project or another, where the projects have different useful lives, then you could utilize A) a repeated...

In order for a project to generate a positive net working capital cash flow at the conclusion of a project,

In order for a project to generate a positive net working capital cash flow at the conclusion of a project, A) the project must have generated a...

When compared to the straight-line depreciation method, MACRS has

When compared to the straight-line depreciation method, MACRS has A) a greater proportion of its depreciation early in the life of the asset. B) a...

For a U.S. corporation with income above $20 million,

For a U.S. corporation with income above $20 million, A) the average tax rate is less than the marginal tax rate. B) the average tax rate is equal...

A tax system in which taxpayers pay a progressively larger share of their income in taxes as their income rises is called

A tax system in which taxpayers pay a progressively larger share of their income in taxes as their income rises is called A) a flat tax system. B)...

If you are discounting a project's cash flows using the nominal cost of capital, then that means that you have taken the following into account:

If you are discounting a project's cash flows using the nominal cost of capital, then that means that you have taken the following into account: A)...

If the real return on U.S. Treasury bills is 14 percent while the rate of expected inflation is anticipated to be 8 percent, then what should nominal rate of return be?

If the real return on U.S. Treasury bills is 14 percent while the rate of expected inflation is anticipated to be 8 percent, then what should nominal...

If inflation is anticipated to be 10 percent during the next year while a nominal rate of 20 percent will be earned on U.S. Treasury bills, then what is the accurate real rate of return on these securities?

If inflation is anticipated to be 10 percent during the next year while a nominal rate of 20 percent will be earned on U.S. Treasury bills, then what...

_______ represent dollars stated in terms of constant purchasing power.

_______ represent dollars stated in terms of constant purchasing power. A) Nominal dollars B) Real dollars C) Inflated dollars D) None of the above Answer:...

Which of the following is the best example of a sunk cost?

Which of the following is the best example of a sunk cost? A) Future payments on a leased building. B) Future research and development costs. C)...

If a firm has the option of leasing some factory space to another firm or utilizing it for another product line, then if the firm chose the product line how should it handle the lost lease payments on the factory space?

If a firm has the option of leasing some factory space to another firm or utilizing it for another product line, then if the firm chose the product...

Whenever a project has a negative impact on an existing project's cash flows, then that effect should

Whenever a project has a negative impact on an existing project's cash flows, then that effect should A) be ignored. B) be ignored if the project...

A firm is considering taking a project that will produce $12 million of revenue per year. Cash expenses will be $5 million, and depreciation expenses will be $1 million per year. If the firm takes that project, then it will reduce the cash revenues of an existing project by $2 million. What is the free cash flow on the project, per year, if the firm is in the 40 percent marginal tax rate?

A firm is considering taking a project that will produce $12 million of revenue per year. Cash expenses will be $5 million, and depreciation expenses...

Brown Mack, Inc., currently has two large manufacturing divisions that share a single plant. Brown Mack owns the plant but has calculated that $6 million of overhead expenses should be allocated to the two equal-sized divisions. If Brown Mack starts a third manufacturing division, of equal size to the other two divisions, then what overhead cost should the new division take into account on its capital budgeting cash flow analysis?

Brown Mack, Inc., currently has two large manufacturing divisions that share a single plant. Brown Mack owns the plant but has calculated that $6 million...

Corporate overhead allocations should only be taken into account on project analysis if

Corporate overhead allocations should only be taken into account on project analysis if A) the firm is currently covering all of its overhead allocations. B)...

Which of the following should not be included in a project's cash flow calculations?

Which of the following should not be included in a project's cash flow calculations? A) cash expenses B) cash revenues C) allocated expenses D) none...

The impact of a project on a firm's overall value depends on

The impact of a project on a firm's overall value depends on A) a firm's accounting earnings. B) a firm's cash flow. C) a project's cash flow. D)...

Additions to tangible assets, intangible assets ,and current assets can be described as

Additions to tangible assets, intangible assets ,and current assets can be described as A) cash flows associated with investments. B) operating cash...

The firm's ____________ is used to calculate NOPAT because the profits from a project are assumed to be incremental to the firm.

The firm's ____________ is used to calculate NOPAT because the profits from a project are assumed to be incremental to the firm. A) average tax rate B)...

The idea that we can evaluate the cash flows from a project independently of the cash flows for the firm is known as

The idea that we can evaluate the cash flows from a project independently of the cash flows for the firm is known as A) the stand-alone principle. B)...

In order to calculate free cash flow by starting with incremental cash flow from operations, we should

In order to calculate free cash flow by starting with incremental cash flow from operations, we should A) subtract the incremental capital expenditures...

______ refers to the cash flow that a project is expected to generate after all operating expenses and taxes have been paid.

______ refers to the cash flow that a project is expected to generate after all operating expenses and taxes have been paid. A) Incremental cash flow...

The term ___________ refers to the fact that these cash flows reflect the amount by which the firm's total after-tax free cash flows will change if the project is adopted.

The term ___________ refers to the fact that these cash flows reflect the amount by which the firm's total after-tax free cash flows will change if...

The ___________ is intended to reconcile changes in the balance sheet cash accounts.

The ___________ is intended to reconcile changes in the balance sheet cash accounts. A) capital budgeting cash flow calculation B) accounting statement...

The NPV of a project is estimated by

The NPV of a project is estimated by A) discounting the expected cash flows of a project in the future. B) discounting only the certain cash flows...

The cash flows used in capital budgeting calculations are based on.

The cash flows used in capital budgeting calculations are based on. A) historical estimates. B) forecasts of future cash revenues, expenses, and...

Which ONE of the following statements is true?

Which ONE of the following statements is true? A) The longer the maturity of a security, the greater its interest rate risk. B) If investors believe...

The three economic factors that determine the shape of the yield curve are

The three economic factors that determine the shape of the yield curve are A) the real rate of interest, the expected rate of inflation, and marketability. B)...

Which one of the following statements is NOT true?

Which one of the following statements is NOT true? A) The relationship between yield and marketability is known as the term structure of interest...

Inverted yield curves are observed when

Inverted yield curves are observed when A) the economy is growing. B) the economy is stagnant. C) the economy is in recession. D) None of the above. Answer:...

Which one of the following statements is NOT true?

Which one of the following statements is NOT true? A) The risk that the lender may not receive payments as promised is called default risk. B) Investors...

Which ONE of the following statements is true?

Which ONE of the following statements is true? A) The lower the transaction costs are, the greater a security's marketability. B) The interest rate,...

Marketability is the ability of an investor

Marketability is the ability of an investor A) to sell a security quickly, at a low transaction cost, and at a price close to its fair market value. B)...

Which ONE of the following statements is true?

Which ONE of the following statements is true? A) Long-term bonds have lower price volatility than short-term bonds. B) As interest rates decline,...

Which one of the following statements is NOT true?

Which one of the following statements is NOT true? A) Interest rate risk is the risk that bond prices will change as interest rates change. B) Interest...

Which one of the following statements is NOT true?

Which one of the following statements is NOT true? A) The realized yield is the return earned on a bond given the cash flows actually received by...

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments A) exceed the price of the...

Which one of the following statements is NOT true?

Which one of the following statements is NOT true? A) The yield to maturity of a bond is the discount rate that makes the present value of the coupon...

Which one of the following statements about zero coupon bonds is NOT true?

Which one of the following statements about zero coupon bonds is NOT true? A) Zero coupon bonds have no coupon payments but promise a single payment...

In calculating the current price of a bond paying semiannual coupons, one needs to

In calculating the current price of a bond paying semiannual coupons, one needs to A) use double the number of years for the number of payments. B)...

Bonds sell at a premium over the par value when market rates for similar bonds are

Bonds sell at a premium over the par value when market rates for similar bonds are A) less than the bond's coupon rate. B) greater than the bond's...

Bonds sell at a discount off the par value when market rates for similar bonds are

Bonds sell at a discount off the par value when market rates for similar bonds are A) less than the bond's coupon rate. B) greater than the bond's...

If a bond's coupon rate is equal to the market rate, then the bond will sell

If a bond's coupon rate is equal to the market rate, then the bond will sell A) at a price equal to its face value. B) at a price greater than its...

Which one of the following statements about bond price is NOT true?

Which one of the following statements about bond price is NOT true? A) To compute a bond's price, one needs to calculate the present value of the...

Which ONE of the following statements is true?

Which ONE of the following statements is true? A) To secure the conversion option on a bond, bondholders would be willing to pay a premium. B) The...

Which ONE of the following statements is true?

Which ONE of the following statements is true? A) Zero coupon bonds have no coupon payments over its life and only offer a single payment at maturity. B)...

Which one of the following statements about vanilla bonds is NOT true?

Which one of the following statements about vanilla bonds is NOT true? A) They have no special provisions. B) The face value, or par value, for most...

It is easy for individuals to trade in the corporate bond market because

It is easy for individuals to trade in the corporate bond market because A) the corporate bond market is considered to be very transparent. B) prices...

Which one of the following statements is NOT true?

Which one of the following statements is NOT true? A) Prices in the corporate bond market also tend to be more volatile than the markets for stocks...

Which ONE of the following statements is true?

Which ONE of the following statements is true? A) The largest investors in corporate bonds are life insurance companies and pension funds. B) The...

Which one of the following statements is NOT true?

Which one of the following statements is NOT true? A) Weak-form market efficiency implies that investors who have access to inside or private information...

With semistrong-form market efficiency,

With semistrong-form market efficiency, A) the price of a security in the market reflects all public information only. B) it would be possible to...

With strong-form market efficiency,

With strong-form market efficiency, A) the price of a security in the market reflects all public information only. B) it would not be possible to...

Which one of the following statements is NOT true?

Which one of the following statements is NOT true? A) Competition among investors is an important driver of informational efficiency. B) If market...

Which one of the following statements is NOT true?

Which one of the following statements is NOT true? A) The overall efficiency of a capital market depends on its operational efficiency and its informational...

In an efficient capital market,

In an efficient capital market, A) security prices fully reflect the knowledge and expectations of all investors at a particular point in time. B)...

Which one of the following statements is NOT true?

Which one of the following statements is NOT true? A) The correct way to annualize an interest rate is to compute the effective annual interest rate...

Which one of the following statements is NOT true?

Which one of the following statements is NOT true? A) The Truth-in-Lending Act was passed by Congress to ensure that the true cost of credit was disclosed...

Which one of the following statements is NOT true?

Which one of the following statements is NOT true? A) The APR is the appropriate rate to do present and future value calculations. B) The EAR is...

The true cost of lending is the

The true cost of lending is the A) annual percentage rate. B) effective annual rate. C) quoted interest rate. D) none of the above. Answer:...

The true cost of borrowing is the

The true cost of borrowing is the A) annual percentage rate. B) effective annual rate. C) quoted interest rate. D) periodic rate. Answer:...

Which one of the following statements is TRUE about the effective annual rate (EAR)?

Which one of the following statements is TRUE about the effective annual rate (EAR)? A) The effective annual interest rate (EAR) is defined as the...

Your investment in a small business venture will produce cash flows that increase by 15 percent every year for the next 25 years. This cash flow stream is called

Your investment in a small business venture will produce cash flows that increase by 15 percent every year for the next 25 years. This cash flow stream...