Chapter 11 the Basics of Capital Budgeting

CHAPTER 11 THE BASICS OF CAPITAL BUDGETING (Difficulty Levels: Easy, Easy/Medium, Medium, Medium/Hard, and Hard) We specify issue to our students that some of the questions can best be canvass by sketching out a NPV profile graph and whence mentation about the question in relation to the graph. enrapture bewitch the preface for information on the AACSB letter indicators (F, M, etc.) on the equal to(p) lines. Multiple Choice: True/False (11-1) slap-up bud catch up withF I assist: b sonant [i].A firm should neer accept a realize if its acceptance would lead to an developing in the firms cost of cracking letter (its WACC). a.True b.False (11-2) PV of notes flowsF I cause: b EASY [ii].Because present value refers to the value of property flows that occur at different points in time, a serial publication of present values of cash flows should not be summed to snuff it the value of a capital budgeting estimate . a.True b.False (11-2) NPVF I react: b EASY [iii].Assuming that their NPVs based on the firms cost of capital argon equal, the NPV of a ascertain whose cash flows accrue comparatively apace will be more sensitive to changes in the tax deduction rate than the NPV of a fox whose cash flows bring forwards in later in its life. a.True b.

False (11-2) NPV and IRRF IAnswer: b EASY [iv].A basic rule in capital budgeting is that If a projects NPV exceeds its IRR, whence the project should be accepted. a.True b.False (11-2) Mutually liquid ecstasy projectsF IAnswer: a EASY ! [v].Conflicts amid both mutually exclusive projects one time in a while occur, where the NPV method ranks one project higher but the IRR method puts the other one first. In theory, such conflicts should be resolved in favor of the project with the higher NPV. a.True b.False (11-2) Mutually exclusive projectsF IAnswer: b EASY [vi].Conflicts between two mutually exclusive projects occasionally occur, where the NPV method...If you want to get a full essay, order it on our website: BestEssayCheap.com

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