Chapter 7: Funds Analysis, Cash Flow Analysis, and Financial PlanningJust click on "True" or "False" and you'll get immediate feedback.Note: Your browser must support JavaScript in order to use this quiz. Show  True/False statements/answers are Copyright © by Pearson Education Limited. Used by permission. All rights reserved.
|
| Question | Answer |
| 1 | True |
| 2 | False |
| 3 | False |
| 4 | True |
| 5 | True |
| 6 | False |
| 7 | False |
| 8 | False |
| 9 | True |
| 10 | False |
To read more of such interesting articles on Commerce topics, stay tuned to BYJU’S.
Also see:
- MCQs on Depreciation
- Difference Between Depreciation Expense and Accumulated Depreciation
Investment decisions involve costs and revenues that extend over a number of years.
- a. True
b. False
One of the reasons that capital budgeting is so important is that major capital investment projects are generally irreversible.
- a. True
b. False
A firm should continue to increase its level of capital investment so long as the rate of return on the least profitable investment project that the firm undertakes is less than the marginal cost of capital.
- a. True
b. False
In calculating net cash flows, depreciation is treated as a cost.
- a. True
b. False
In general, a firm should undertake a project only if its net present value is positive.
- a. True
b. False
In general, a firm should undertake any project that has an internal rate of return that is positive.
- a. True
b. False
If the internal rate of return is used to discount all cash flows associated with a project, the net present value of the project will be equal to zero.
-
a. True
b. False
Calculation of the internal rate of return incorporates the implicit assumption that net cash flows from a project can be reinvested at the internal rate of return.
- a. True
b. False
If the net present value method and the internal rate of return method yield contradictory results, the latter should be followed rather than the former.
- a. True
b. False
A house that is owned by an individual is referred to as human capital, whereas a house that is owned by a corporation is referred to as non-human capital.
- a. True
b. False
The profitability per dollar invested is referred to as the profitability index.
- a. True
b. False
One problem with the profitability index is that it ignores the time value of money.
- a. True
b. False
In the absence of capital rationing, a firm should undertake all projects with a profitability index greater than zero.
- a. True
b. False
One advantage of using internal funding to support investment projects is that the firm experiences no economic cost of capital for internal funding.
- a. True
b. False
The cost of debt should generally be figured on an after-tax basis.
- a. True
b. False
The difference between the external and internal cost of raising equity capital is due to flotation costs.
- a. True
b. False
The cost of raising equity capital should generally be figured on an after-tax basis.
- a. True
b. False
The rate of return that stockholders require to invest in a firm is the cost of equity capital.
- a. True
b. False
The cost of debt is generally greater than the cost of equity capital.
- a. True
b. False
The difference between the rate of return on debt issued by the government and the rate of return on equity capital is referred to as a risk premium.
- a. True
b. False
According to the dividend valuation model, the price of a share of stock will increase if the rate of return required by investors increases.
- a. True
b. False
The capital asset pricing model determines the beta coefficient for a firm by regressing the variability in the firm's common stock against the variability in an index of all common stocks.
- a. True
b. False
A firm with a beta coefficient that is equal to zero has the same degree of risk as a broad-based portfolio of stocks.
- a. True
b. False
A firm with a beta coefficient that is equal to two is twice as risky as a broad-based portfolio of stocks.
- a. True
b. False
Firms generally use only one of the three equity capital valuation methods.
-
a. True
b. False
The risk encountered by a firm when raising funds by issuing debt is greater than the risk from issuing common stock.
- a. True
b. False
The risk encountered by an investor when holding debt is greater than the risk from holding common stock.
- a. True
b. False
The composite cost of capital reflects the debt to equity ratio preferred by the firm.
- a. True
b. False
During most of the 1980s, the cost of capital in the United States was below the cost of capital in Japan.
- a. True
b. False
According to the 1977 study by Gitman and Forrester, the single most commonly used capital budgeting technique among the firms surveyed was the internal rate of return method.
- a. True
b. False
