Objective of a firm management

Assignment Help Accounting Basics
Reference no: EM13787324

1. The objective of a firm's management should be to only undertake the projects that ________ the market value of shareholders' equity.

a. decrease

b. increase

c. do not change

d. provide zero change to

e. none of the above

2. The decision rule that management should use with net present value (NPV) is to undertake only those projects with a(n) ________ NPV.

a. positive

b. negative

c. indeterminate

d. negative or zero

e. none of the above

3. The net present value (NPV) amount represents the amount by which the project is expected to ________ shareholder wealth (assuming positive NPV for this question).

a. provide zero change to

b. decrease

c. increase

d. provide zero change to or decrease

4. Net cash inflows from operations can be computed in which of the following ways?

a. Cash Flow = Revenues - Cash Expenses - Taxes

b. Cash Flow = Net Income + Noncash Expenses

c. Cash Flow = Revenue - Total Expenses - Taxes + Noncash Expenses

d. all of the above

5. Which of the following is not true?

a. Multiple IRRs for a project may exist when the project's required rate of return is high.

b. IRR implicitly assumes that cash flows can be reinvested at the IRR rate.

c. Ranking projects based on NPV is not always the appropriate way to pick which projects to undertake.

d. When used to compare two projects, ACC assumes that a project with a short live can be repeated at a later date.

6. Which of the following would not be expected to affect the decision of whether to undertake an investment?

a. Income tax rates.

b. Cost of capital.

c. Sales reductions in other products caused by this investment.

d. Cost of the feasibility study which was conducted for a project.

7. The cost of capital does not reflect any market related risk of the project, or "beta."

a. true

b. false

8. In computing a project's cost of capital the risk to use is:

a. the risk of the financing instruments used to fund the project

b. the risk of the project's cash flows

c. a risk free rate

d. a historical risk rate using T-bills

e. none of the above

9. When a firm has to ration capital, it should:

a. Fund the set of projects within the limits of capital that produces the greatest overall net present value.

b. Fund the set of projects within the limits of capital that produces the greatest overall internal rate of return (IRR).

c. Rank the projects based on net present value and fund as many of them in that order as possible.

d. Rank the projects based on internal rate of return (IRR) and fund as many of them in that order as possible.

10. If a project requires a $50,000 increase in inventory, this increase in inventory . . .

a. represents a cash outflow for the project.

b. represents a cash inflow for the project.

c. represents a cash outflow for the project but must be adjusted for taxes.

d. represents a cash inflow for the project but must be adjusted for taxes.

e. should be ignored in the evaluation of the project.

11. The ________ is the rate that prevails in a zero-inflation scenario. The ________ is the rate that one actually observes.

a. nominal, inflation

b. real rate, expected

c. nominal, real rate

d. real rate, nominal

12. If the nominal cost of capital is 16% per year and the expected rate of inflation is 5% per year, then compute the real cost of capital (rounded to nearest tenth of a %).

a. 11.5%

b. 10.5%

c. 8.5%

d. 9.0%

e. none of the above

13. When a project has multiple internal rates of return:

a. the analyst should choose the highest rate to compare with the firm's cost of equity

b. the analyst should choose the lowest rate to compare with the firm's cost of capital

c. the analyst should choose the rate that seems most "reasonable" given the project's cash flows, to compare with the firm's cost of equity

d. the analyst should compute the project's net present value and accept the project if its NPV is greater than $0.

e. none of the above

14. Which of the following statements is most correct?

a. Sunk costs must be included in the project's cash flow.

b. R&D expenditures cannot be a part of the initial cost of a project.

c. Opportunity costs are sunk costs and therefore should not be included in the cost of the project.

d. Depreciation is not a cash expense.

e. All of the above statements are false.

15. Suppose the firm's cost of capital is stated in nominal terms, but the project's cash flows are expressed in real dollars. If a nominal rate is used to discount real cash flows and there is inflation (assume positive inflation), the calculated NPV would

a. be biased upward

b. be biased downward

c. be correct

d. be possibly biased; either upward or downward

e. none of the above

16. The correct method to handle overhead costs in capital budgeting is to:

a. allocate a portion to each project.

b. allocate them to projects with the highest NPVs.

c. ignore all except identifiable incremental amounts.

d. ignore them in all cases.

Reference no: EM13787324

Questions Cloud

Display the commissions earned last year by all sales employ : 1. Create a VIEW dbo.vw_Commissions to display the commissions earned last year by all sales employees. Round the result set to two decimal places and do not include any salesperson who did not earn a commission. Include the salesperson name, the com..
Explain the reported criminal behavior : What feelings or reactions are evoked in you by the article? How would you explain the reported criminal behavior using at least two theories from the psychological perspectives to each article or news story?
Contrast uses of variable and absorption costing : Compare and Contrast Uses of Variable and Absorption Costing.
Smtp and pop are common protocols : SMTP and POP are common protocols used in communication. What methods, procedures, or policies can be implemented to make the routing of mail more secure for your networks or personal use?
Objective of a firm management : The objective of a firm's management should be to only undertake the projects that ________ the market value of shareholders' equity.
Do you agree with its purpose and the secrecy of its work : Do you agree with its purpose and the secrecy of its work? How does the work of this court relate to the constitutional protections against unreasonable searches and seizures
Article addresses intrinsic and extrinsic motivation : What is the main hypothesis or the research questions addressed? How do the research methods address the hypothesis or the research questions?
An activity-based flexible budget issues : Describe a Flexible Budget and give examples of advantages and disadvantages.
Research options for improving the current use of tcp/ip : Research options for improving the current use of TCP/IP and recommend new software and equipment that's available. Describe how use of equipment, software, and multiplexing could aid in improving use for communications which would reduce network con..

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd