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    Capital Budgeting

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    1. The difference between the market value of an investment and its cost is the:
    Net present value
    Internal rate of return
    Payback Period
    Profitability Index

    2. The process of valuing an investment by determining the net present value of its future cash flows is called (the):
    Constant dividend growth model
    Discount cash flow valuation
    Expected earnings model
    Capital Asset Pricing Model

    3. The length of time required for an investment to generate cash flow sufficient to recover its initial cost it the:
    Net present value
    Internal rate of return
    Payback period
    Profitability index

    4. The discount rate that makes the net present value of an investment exactly equal to zero is the:
    Payback period
    Internal rate of return
    Average accounting return
    Profitability index

    5. A situation in which taking one investment prevents the taking of another is called:
    Net present value profiling
    Operational ambiguity
    Mutually exclusive investment decisions
    Issues of scale
    Multiple rates of return

    6. The chnages in the firms future cash flows that are a direct consequence of accepting a project are called:
    Incremental cash flows
    Stand-alone cash flows
    Aftertax cash flows
    Net present value cash flows
    Erosion cash flows

    7. A cost that has alread been paid, or the liability to pay has already been incurred is a(n):
    Salvage value expense
    Net working capital expense
    Opportunity cost
    Sunk cost
    Erosion cost

    8. The most valuable investment given up if an alternative investment is chosen is a(n):
    Salvage value expense
    Net working capital expense
    Sunk cost
    Opportunity cost
    Erosion cost

    9. The possibility that errors in projected cash flows can lead to incorrect NPV estimates is called:
    Forecasting risk
    Projection risk
    Scenario risk
    Monte Carlo risk
    Accounting risk

    10. An analysis of what happens to NPV estimates when we ask what-if questions is called:
    Forecasing analysis
    Scenario analysis
    Sensitivity analysis
    Simualtion analysis
    Break-even analysis

    11. An analysis of the relation between sales volume and various measures of profitability is called:
    Forecasting analysis
    Scenario analysis
    Sensitivity analysis
    Simulation analysis
    Break-evem analysis

    12. The return that lender require on their loaned funds to the firm is called the:
    Coupon rate
    Current yield
    Cost of debt
    Capital gains yield
    Cos of capital

    13. The weighted averal of the firm's cost of equity, preferred stock, and after-tax debt is the:
    Reward to risk ratio for the firm
    Expected capital gains yield of the stock
    Expected capital gains yield for the firm
    Portfolio beta of the firm
    Weighted average cost of capital (WACC)

    14. The proportions of the market value of the firm's assets financed via debt, common stock, and preferred stock are called the firms ______________.
    Financing costs
    portfoliio weights
    Beta coefficient
    Capital structure weights
    Cost of capital

    15. The legal document describing details of the issuing corporation and its security offering to potential investors is called the _____________.
    Letter of comment
    Rights offering
    Offering prospectus
    Regulation A statement
    Tombstone advertisement

    16. A public offering of securities offered for sale to the general public on a direct cash basis is called a:
    Best efforts offer
    Firm commitment offer
    General cash offer
    Rights offer
    Red herring offer

    17. The use of personal borrowing to change the overall amount of finanical leverage to which the individual is exposed is called:
    Private debt placement
    Dividend recapture
    Homemade leverage
    A privileged subscription offer
    The weighted average cost of captial

    18. The equity risk derived from the firm's operating activities is called ________ risk.

    19. The proposition that the cost of equity is a positive linear function of capital structure is called :
    The Capital Asset Pricing Model
    M&M Proposition I
    M&M Propostion II
    The Law of One Price
    The Efficient Markets Hypothesis

    20. The equity risk derived form the firm's capital structure policy is called ___________ risk.

    21. Payments made out of the firm's earning to its owners in the form of cash or stock are called:
    Share repurchases
    Stock splits

    22. Payments made by a firm to its owners from sources other than current or accumulated earings is called:
    Share repurchases
    Stock splits

    23. A cash payment made by a firm to its owners as a result of a one-time event is called a:
    Share repurchase
    Liquidating dividends
    Regular cash dividend
    Special dividend
    Extra cash dividend

    24. The date by which a stockholder must be registered on the firm's roll as having share ownership in order to receive a declared dividend is called the _________.
    date of ex-rights
    date of ex-dividend
    date of record
    date of payment
    date of declaration

    25. The date on which the board of directors passes a resolution authorizing payment of a dividend to the sharholders if the _________ date.

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    Solution Summary

    The solution explains some multiple choice questions relating to capital budgeting